As a typical contrarian value type, I ignore all the hype and excitement of the list of stocks at new highs. I know there is a whole school of trading and investing that loves the new-high list. After all a stock can’t double or triple without hitting a new high along the way, right?
Although that’s true, and momentum investing has been proved to work for those who can maintain a laser-like focus on their screens during the day, that approach doesn’t suit me. When I go to the store and see that steaks and red wine are on sale, I load up the cart.
I buy stocks the same way.
I look for stocks that have fallen out of favor with investors and are bouncing along at new lows. I don’t blindly buy them — any more than I would load up my grocery cart with liver and turnips just because they were on sale. Once I find a stock on the list, it still has to pass my valuation and credit checks — but I am far more likely to find a deep-value asset-based bargain on the list of stocks hitting new lows than on the new-high list.
Two stocks on the current list of stocks near new lows catch my eye.
Swift Energy (SFY) continues to see its stock price decline. The transition from a traditional close-in offshore driller to an onshore unconventional exploration and production company is taking longer than expected. Investors are overlooking the fact that while this company may not be progressing as fast as the always accurate analysts expect, it is still turning a profit and the shares trade at just 50% of tangible book value.
MFC Industrial (MIL) is in the commodity-supply-chain and merchant-banking business. The supply chain part of the company finds and delivers commodity products to customers around the world. MFC deals in metals, plastics, animal feeds, ore, chemicals, energy, wood products and other basic commodities. If you need it, MFC will either find it or produce it — and deliver it you around the world. The merchant-banking business looks to buy resource-oriented business for less than their determination of intrinsic value. MFC is not a passive investor — it prefers to control or influence the companies in which they invest. The company has been consistently profitable, with 2008 the only year in the past decade with a loss. Although the commodity business may not be the best in the world (given weak prices for many metals and commodities) the stock is till ridiculously cheap at 70% of tangible book value in my opinion.
Shopping the new-low list for bargains fits my personality and approach much better than perusing the new-high list for mo-mo plays. The new-low list is far more likely to provide safe and cheap stocks with the type of long-term profit potential I am seeking.
At the time of publication, Melvin was long SFY.