name (![[info]](http://l-stat.livejournal.com/img/userinfo.gif){kind=small} electricshadow4) wrote,@ 2006-12-04 22:35:00 |
|
Stock Market
I haven't really been looking at the stock market on a regular basis in about 5 years, so it's going to take me a bit of time to adjust to it again, now that I have the question of "What should I do with the significant sums of money earning .2% in my checking account?" So, in a possibly semi-recurring feature, I'm going to look at 3 stocks with a common feature. Please do me a favor and alert me to anything I say which you disagree with. Despite my appearances, I am most definitely NOT an expert.
Today, we use a theory from some random article I found called "Dogs of the S&P 500". The basic theory behind the article is that you can make a profit by investing in the stocks that have done the worst over the past 12 months. Using MSN's "12 Month Relative Strength" feature, I got a list of the 25 "worst" S&P 500 stocks over that period. Some of these were due to spin-offs (Wendy's, CBS), while others were just weak companies (Gateway). I found 3 that I thought from a preliminary indication might have promise.
Bausch and Lomb (BOL) - Eyecare products - This stock was pounded in May, falling from 70 to 50 amid a recall of some contact lens solutions. There is an estimated liability of $500 mil-$1 bil in lawsuits as a result. However, with another contact lens maker recently also facing a recall, I would think BOL's liability would decrease. The stock has not done much over the past 10 years, with trading in the 40s throughout 1992 and 1993. It is currently at 48.43, I would estimate that 55-60 would be a reasonable moderate-term expectation. However, if other bad news comes out, this stock could easily drop to around 30.
Louisiana Pacific (LPX) - Building materials - This stock seems to be falling with the entire housing industry. The weak market in OSB (similar to plywood, but cheaper) is hurting the bottom line of this company. Points in favor of the stock are, and I quote some guy "LPX is currently trading for less than its book value. It's also trading at a compelling enterprise value/cash flow ratio of less than three." Also, there are rumors of a buy-out, which would IMO be at the 27-28 dollar range, a signficant premium. LPX also has a very strong cash-on-hand position. It is currently at 21.38, I would estimate that 27 in the short term or 35 by the middle of 2009 are reasonable expectations. With a book value of over 20, I can see very little downside.
Whole Foods Market (WFMI) - Organic grocery stores - This stock had gone up pretty steadily from 1995 to around January 2006. Since that point, it has lost about 35% of its value from its 52-week high of 79.90. This has been mostly due to decreasing growth expectations. Same-store sales were recently projected for 2007 to increase only 6% rather than the 12-15% previously seen. However, this is still an industry leader in a growth industry. I see no reason to believe the reason for the company having slower growth is specifically due to competition. In the long run, WFMI runs more of a risk from competition from established grocery chains as well as Wal*Mart. It is currently at 49.37, considering that the most recent correction seems overly strong, I would estimate that 60 by the end of January and the next earnings announcemnt is a reasonable expectation. I would not expect it to continue to have annual double-digit percentage gains, though.
I haven't really been looking at the stock market on a regular basis in about 5 years, so it's going to take me a bit of time to adjust to it again, now that I have the question of "What should I do with the significant sums of money earning .2% in my checking account?" So, in a possibly semi-recurring feature, I'm going to look at 3 stocks with a common feature. Please do me a favor and alert me to anything I say which you disagree with. Despite my appearances, I am most definitely NOT an expert.
Today, we use a theory from some random article I found called "Dogs of the S&P 500". The basic theory behind the article is that you can make a profit by investing in the stocks that have done the worst over the past 12 months. Using MSN's "12 Month Relative Strength" feature, I got a list of the 25 "worst" S&P 500 stocks over that period. Some of these were due to spin-offs (Wendy's, CBS), while others were just weak companies (Gateway). I found 3 that I thought from a preliminary indication might have promise.
Bausch and Lomb (BOL) - Eyecare products - This stock was pounded in May, falling from 70 to 50 amid a recall of some contact lens solutions. There is an estimated liability of $500 mil-$1 bil in lawsuits as a result. However, with another contact lens maker recently also facing a recall, I would think BOL's liability would decrease. The stock has not done much over the past 10 years, with trading in the 40s throughout 1992 and 1993. It is currently at 48.43, I would estimate that 55-60 would be a reasonable moderate-term expectation. However, if other bad news comes out, this stock could easily drop to around 30.
Louisiana Pacific (LPX) - Building materials - This stock seems to be falling with the entire housing industry. The weak market in OSB (similar to plywood, but cheaper) is hurting the bottom line of this company. Points in favor of the stock are, and I quote some guy "LPX is currently trading for less than its book value. It's also trading at a compelling enterprise value/cash flow ratio of less than three." Also, there are rumors of a buy-out, which would IMO be at the 27-28 dollar range, a signficant premium. LPX also has a very strong cash-on-hand position. It is currently at 21.38, I would estimate that 27 in the short term or 35 by the middle of 2009 are reasonable expectations. With a book value of over 20, I can see very little downside.
Whole Foods Market (WFMI) - Organic grocery stores - This stock had gone up pretty steadily from 1995 to around January 2006. Since that point, it has lost about 35% of its value from its 52-week high of 79.90. This has been mostly due to decreasing growth expectations. Same-store sales were recently projected for 2007 to increase only 6% rather than the 12-15% previously seen. However, this is still an industry leader in a growth industry. I see no reason to believe the reason for the company having slower growth is specifically due to competition. In the long run, WFMI runs more of a risk from competition from established grocery chains as well as Wal*Mart. It is currently at 49.37, considering that the most recent correction seems overly strong, I would estimate that 60 by the end of January and the next earnings announcemnt is a reasonable expectation. I would not expect it to continue to have annual double-digit percentage gains, though.
