When it comes to finding stocks to buy, I find myself strangely attracted to the markets’ losers. Stocks that have been absolutely hammered can present phenomenal buying opportunities for patient investors. If you are willing to think about the long term, the ability of these losers to recover usually results in big gains for portfolios.
The recent stock market correction accelerated the selling in many names that already were headed lower. Some already are in recovery mode, but it is not too late to get in on the action.
The headlines might be scary and frightening, but that is the whole point of buying the losers. If things were rosy, you wouldn’t have the opportunity to buy in at a discount. The proverbial blood is in the water on these losers, and you should be licking your chops.
For sure, some of these stocks have major problems, but think about how likely it is for these stocks to continue to fall. Yes, companies and businesses in decline do fail. I don’t want to own those stocks for obvious reasons. That said, it is very difficult to kill a company in this country. The stakes are high for management teams to fix the problems. When they do, you win.
Here are three stocks in the dumps to consider for your portfolio:
Research In Motion
The poster boy for the beat up stock category, Research In Motion (NASDAQ:RIMM) is in complete free fall. The company missed the mark terribly with respect to the smartphone craze. They made a common mistake in resting on the BlackBerry brand and believing core customers would not abandon ship. They were wrong.
When bears realized the company was vulnerable, they attacked. Shares of RIM are down 54% since earlier in the year. That includes an impressive rally 49% rally off the lows reached in early August. There clearly is more room to run as short sellers move on to the next victim. With all those problems, RIM still is a valuable brand with impressive profits, albeit smaller profits.
RIM is down but not out. With guidance for the future tempered, RIM managed to beat Wall Street guidance for the quarter ending May 31. For the full year, the average Wall Street estimate is for the company to make $5.14 per share. At current prices, you can buy the stock for six times current-year estimates.
That is incredibly cheap. If the company finds the right formula for future profit growth, this stock could take off again.
Cooper Tire & Rubber
One look at the chart of Cooper Tire and Rubber (NYSE:CTB), and one can’t but help get the feeling of falling over a cliff. Since May, this industrial company has lost more than 50% of its value! The company was hit by a double whammy of higher commodity prices and a reduction in economic activity in the second quarter. Now, with fears of a double-dip recession, the stock is in a free fall.
A late summer reprieve has helped things stabilize a bit, but the stock has a long way to go before reaching previous levels. Of course, previous levels might be unrealistic given the economic headwinds. That said, the stock easily could move $5 higher from here.
Despite an earnings miss in the quarter ending June 30, the outlook for Cooper Tire is solid. The average Wall Street estimate calls for a profit of $1.30 per share this year, and improving by 42% next year to $1.85 per share. At current prices, shares trade for less than 10 times current-year estimated earnings. That is a screaming buy in my opinion. Expect this one to bounce back quickly.
With so many Chicken Littles out there, one might think the poultry business was booming. Unfortunately, it is not. With higher feed costs eating margins, the entire industry is reeling. Stocks across the board have been falling. For Pilgrim’s Pride (NYSE:PPC), the timing could not be worse.
The company is struggling to regain profitability. Results for the quarter ending June 30 do not bode well. Pilgrim’s reported a loss of 60 cents per share in the period. Analysts were looking for a much smaller loss of 23 cents per share. The disappointing results likely will result in the company losing nearly $2 per share for the current year.
No wonder the stock is in the dumps. Since April, shares of Pilgrim’s Pride have fallen by more than 50%. Now trading for $3.50, the market is skeptical of the company’s prospects. The dim outlook is a good time to buy this beaten-down stock. Wall Street currently is expecting the company to make a small profit in 2012. If so, the stock potentially could double in value within the next 12 months.
Jamie Dlugosch does not own shares in the aforementioned stocks.