I am a bottom feeder when it comes to stocks. I enjoy taking advantage of fear in the market and buying at low prices. It is so remarkably simple, but “buy low and sell high” works.
After a brief respite, stocks recovered thanks to a late-day rally Tuesday. The gains masked what was a very volatile day. Stocks are gyrating like the out-of-control Apollo 13 after explosions rocked that spacecraft from its scheduled mission to the moon.
If anyone thinks they can time the exact bottom of this mess, think again. I’ve heard from many investors that believed last Thursday was the peak of selling and started buying shares. They were greatly disappointed Monday when stocks fell hard again. These same investors used Monday’s selling to do more buying.
The pattern should serve as a reminder of a tried-and-true approach to buying stocks: dollar cost averaging. If you are one of the fortunate investors with cash available to buy stocks, it would be silly to put all your money to work at one single moment in time. Instead, take a little bit of cash and start buying stocks over time.
There is no doubt stocks are oversold given what we know to be true about the economy and corporate profits. While there is a possibility of a recession, such an outcome is not guaranteed. Stocks are telling us a recession is already here. As such, it very well might be a good time to deploy cash.
Here are three stocks to start nibbling on:
Zipcar
I heard an interesting interview on the radio with respect to the impact of economic uncertainty on individual consumers. This particular gentleman told the story of having a job, but now biking to work, forgoing the convenience of owning a car because he was making less money. I was struck by the peace of mind this person had in adjusting to his new reality.
Zipcar (NASDAQ:ZIP) is a recent initial public offering stock with a business model that caters to regular folks that are downsizing or choosing to go green by forsaking car ownership, but that from time to time still need a car for longer-distance trips. Interestingly, while many recent IPOs like LinkedIn (NYSE:LNKD) have been pummeled in the recent sell-off, Zipcar is holding up relatively well.
Its shares are down less than 10% since its July 21 close of $22.23. Amazingly, most of that loss was taking place Wednesday as the stock finally succumbed to selling pressure, dropping more than 8%. That is not just good outperformance — it is remarkable.
A strong earnings report whereby Zipcar reported a smaller loss than expected is helping to support the stock. If you are a long-term investor, this is one stock you can start nibbling on. Remember: The time to buy interesting and aggressive growth stories is when things appear to be at their worst. We are at one such moment today.
CSX
One sector hit particularly hard by the selling in stocks is the transportation sector. The market is placing its bets on a double-dip recession. In transports, such a scenario likely will result in lower revenues and profits. Mind you, this is all speculation at the moment. CSX (NYSE:CSX) is a train company that has seen its shares drop by 12% since July 21. That is better than the market, but a bit excessive considering current valuation.
CSX trades for just 13 times current-year estimated earnings. Wall Street expects the company to grow profits by 17% from this year to 2012. I love stocks that trade for a multiple that is less than the expected growth rate. Historically, making money on such an investment follows in the not too distant future.
Even if the growth rate is slashed because of a weaker economy, investors are protected by the current low valuation. That is why shares have not fallen as hard as other stocks. Add in a solid dividend of 2.3% per annum, and investors are paid to wait for growth should things be more difficult than currently anticipated.
I would have no problem acquiring shares of CSX bit by bit using a dollar cost averaging approach to better navigate current market volatility.
ConocoPhillips
The oil markets have been capitulating in sympathy with the stock market. Before Wednesday’s small gain, crude prices dipped below $80 per barrel. Such a drop should be positive for consumers, as the inverse with oil at $100 per barrel was thought to be quite damaging to consumer spending. Oil stocks have been hit hard by the selling, but does anyone really believe that oil prices will stay at these low levels?
How often have we heard that oil prices are high because of supply issues? Demand always has fluctuated, thus a double-dip recession theoretically was priced into the market. What matters with oil is that there is dwindling supply. When oil was touching $100 per barrel, OPEC was unwilling — or more likely, unable — to pump up production.
Even at $80 per barrel, oil companies are printing money. Recent selling of oil stocks then presents an opportunity to buy those strong cash flows at a discounted price. ConocoPhillips (NYSE:COP) is down 16% since shares hit a recent peak of $75.81 as of the close on July 21. At current prices, the stock trades for less than eight times 2011 expected earnings.
I would have no hesitancy acquiring shares bit by bit.
