There’s an expression on Wall Street that buying a stock when its price is tumbling is like trying to catch a falling knife. As cheap as something might look, no one wants to step in for fear of having a hand — or worse — chopped off.
Of course, eventually some brave souls somewhere step in, and if they’re right, they stand to make a killing. That’s because they’re following that other popular Wall Street adage, which says the best time to buy is at the point of maximum pessimism.
More evocatively, it’s called buying when there’s blood on the streets.
Global markets are awash in blood these days, and although no one knows when it will be stanched, lots of traders and investors are indeed buying. After all, prices haven’t gone to zero.
As scary as it may be, panic selling has a way of creating once-in-a-generation opportunities for brave — and yes, lucky — investors.
With the eurozone threatening to rip apart at the seams, it’s raining equity knives all over the Continent. That means there are bargains to be had somewhere. Yes, jumping into select stocks at this juncture could just be damn foolish. But it could also be a rare chance to get great assets at ridiculously low prices — and reap outsize rewards.
With that in mind, here’s a look at three beaten-down eurozone stocks that look like bargain-busting buys. Beware that these are purely speculative ideas. By no means should you bet the farm — or your retirement funds — on any of them. But if you’re fortunate enough to have money you can afford to lose and have a big appetite for risk, these dangerous stocks could generate very large returns once the panic subsides.
Shares in Luxottica (NYSE:LUX) have cratered 17% from their-year-to-date high, underperforming the broader market by 10 percentage points over the same period. That might be more understandable if this were a bank, but the Italian company is actually the world’s largest eyewear seller with an incomparable portfolio of brands, including Ray-Ban, Oakley and Burberry. Such is the pain of indiscriminate selling.
But Luxottica should get an nice export tailwind from the cheaper euro, which makes its products more affordable for customers outside the currency zone. Meanwhile, earnings are forecast to grow 20% this quarter and 20% next year, far outpacing the S&P 500.
Spain’s biggest bank has seen its stock plummet 35% from its year-to-date high amid fears that the country’s financial system is on the verge of collapse. Make no mistake, Spain’s banks are indeed precariously wobbly, but the sell-off could very well be overdone.
That’s part of the bull case on Banco Santander (NYSE:STD) as one of InvestorPlace’s Top Stocks for 2012. Yes, it’s a dicey proposition, but if members of the eurozone can avoid a worst-case scenario, shares in Santander could be a grand slam. Oh, and anyone who buys at current levels gets an insane 16% yield on the dividend, to boot.
Siemens (NYSE:SI), the German version of General Electric (NYSE:GE), has been hammered by the region’s economic downturn. GDP growth in the eurozone is flat, while the U.K., Netherlands, Spain, Belgium, Greece and Portugal, among others, are already in recession. Meanwhile, slower growth in China, India and Brazil is seriously bad news, too. The general flight from equities, tighter credit and slowing demand for everything from gas turbines to MRIs is punishing the stock.
Shares in Siemens have lost 24% from their year-to-date peak, underperforming the S&P 500 by 14 percentage points over the same period. But by trading at just 9 times forward earnings, the valuation looks compelling. The 3.5% dividend yield is mighty generous too.
As of this writing, Dan Burrows did not hold a position in any securities mentioned here.