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Blue chips at penny stock prices
Today's Financial News - Posted October 24, 2008
By Andrew Snyder, TodaysFinancialNews.com
Baltimore (TFN): This is a time that will go down as one of the most monumental, most financially important, and possibly most profitable periods in this nation’s history.
Over the past century, there have only been a handful of similar events. There was the Great Depression, the savings and loan crisis of the 1980s, the Internet bubble crash, and now there is the credit crisis of 2008.
As credit markets across the globe ran dry, Wall Street suffered one dramatic blow after another. Valuations of nearly every publicly traded company have been slashed. Some of the companies, many of them global titans, no longer exist.
Companies like Bear Stearns, Lehman Brothers, and Fannie and Freddie Mac have been wiped from America’s financial markets. Others like Washington Mutual, Wachovia, and Merrill Lynch have been swallowed as well. The financial industry will never be the same.
Lessons learned, dollars lost
As fear spread of more failures and threats of a major recession began to sink in, the flow of money and credit slowed so drastically it threatened to choke off the nation’s economy.
After the House of Representatives shot down a bailout bill designed to be a lifeline to the banking industry on September 29, the Dow shed a record 777 points. Americans from all walks of life were stunned as the value of their savings plunged.
Huge companies like Microsoft, Exxon Mobil, and Wal-Mart saw billions of dollars sheared from their market valuations. Well over a trillion dollars in investor equity was destroyed in a matter of seconds.
Then the markets were given a blessing. On October 3, the House of Representatives met again. They voted on a revised bailout plan. The plan passed with 263 votes, 45 more votes than the 218 needed to pass the bill.
Congress effectively slowed the bleeding in the credit industry, lubed the liquidity engine and eradicated the chance of a major recession. With the threat of a major credit crisis greatly reduced, Wall Street investors could once again focus on the true fundamentals of individual companies.
We are back to business as usual.
What is most important is Congress created a bill that gives investors a shot to make some fantastic investments. Companies that saw their valuations destroyed over the past four months suddenly look sorely undervalued.
Investors have a rare opportunity to grab shares of some of the world’s strongest companies at prices we have not seen in years, even decades.
This report will shed light on four of the most promising buying opportunities.
Get your share of the trillion-dollar bailout
All across America, huge companies are selling at deep discounts. One of those companies is General Electric (NYSE:GE). It is one of the most prominent, well-known and successful companies in the world, yet its shares are selling for prices just shy of half what traders were getting one year ago.
In fact, GE has not been this cheap in over a decade. The last two times shares of General Electric were this cheap, investors more than doubled their money in the following few years.
Imagine having the opportunity to purchase shares of the company for just $22 this time last year when shares were peaking at $42.
Investors would have pushed their own mothers out of the way for that kind of opportunity.
Let’s face it. General Electric has been in business for a long, long time. And it will remain in business for an even longer period of time. Because the company is such a diversified mega-conglomerate it has the power to withstand immense turmoil.
A Wall Street panic like the one we saw recently is nothing new to this Blue Chip. GE has endured huge price declines many times in its past. Each and every time it did, share price rebounded dramatically higher than where it started.
As I write, GE’s fundamentals are in ranges we have not seen in a very long time. With a reading of just 9.6, the company’s price-to-earnings ratio is insanely low. It should be twice that figure, at least. The downturn has created the ultimate value play.
That is why Warren Buffett recently wrote the company a check for $5 billion so he could get his hands on the profit potential. You do not become the nation’s richest person by paying too much for something. Follow his lead.
Shares of GE are priced at levels we should not see except during the most catastrophic economic events. We are nowhere close to that situation. Granted, the company’s earnings will suffer over the next few quarters. But the decline will not be anywhere close to justifying this huge share price decline.
General Electric is oversold. Warren Buffett knows it. I know it. Now you know it.
Buy shares of the company and wait for the rebound. In just a year or two, when shares are once again trading for $40 and more, you will be very, very glad you did.
Discover what it is like to be rich
Since we are following in the footsteps of Buffett, how about we take another piece of his sage advice…
Buffett is constantly discussing his investment philosophy: buy what you know and use. This theory is why Campbells Soup and McDonalds have remained relatively unscathed by the credit crunch.
To learn about the next undervalued superstar, all you have to do is open your wallet. I bet you have a few credit cards stashed in there.
All of the major credit card companies – names like Visa, Mastercard, and American Express – have seen their valuations drastically reduced during the recent bear market. None of them are as undervalued as Discover Financial Services (NYSE:DFS) and its powerful Discover Card brand.
Selling for less than $11, down from over $32 less than two years ago, shares of the company are a downright steal.
Again, this company and its products are in a very strong position. No matter what happens in this economy, people will still use their credit cards. And even if every American cuts their cards to shreds, Discover still has a strong network in 184 other countries.
Like I mentioned above, all of the major credit card companies have been hit hard in recent weeks. And all of them have created fantastic buying opportunities. But only Discover adds a powerful technical investing layer to the mix.
Over the next few weeks and months, we are bought to hear the mainstream media discussing record-breaking delinquency rates. More people than ever will be late with credit card payments as the economic machine grinds to a halt.
For the nation as a whole, folks that cannot afford to pay their credit card bills is a terrible thing. But for credit card companies, like Discover, that are allowed to charge huge annual interest rates and levy fees for just about everything, late payers create a wealth of revenue streams.
Shares of the company are trading right at all-time lows. It means no investors have ever bought shares of this company at prices this cheap. It also means if anybody wants to sell, they would have to do it at a loss. It puts a solid floor under share price and is a phenomenon technical investors love.
Even if the economy were to take a strong downward slide, Discover’s firm price floor would help avoid any serious share-price decline. It will also create a catapulting function as the market and the economy rebound.
As long as you buy shares below $12, your position should create some fantastic profits.
The coal industry cannot die
While we are on the subject of investing in what we know and use, let’s discuss another product that we are both using right now, electricity.
Electricity is the commodity this world depends on every second of every day. And chances are the electricity your computer is using as you read this report was created by coal. It is a good bet because about 50% of this nation’s electricity is generated by burning coal.
If you have heard any of the presidential debates, coal is going to be a major energy focus over the next four or eight years. Both candidates are pushing for increased growth in the clean-coal industry.
That means coal is not going away anytime soon. But if an outsider were to look at the prices for the raw material or the share price of the companies mining and selling the indispensable fuel, they may be inclined to believe coal’s days are numbered.
They would be dead wrong.
Coal will play a vital role in the global economy for decades, if not centuries, to come. Thanks to new technologies, coal can be burnt in an ultra-efficient, super-clean process. It can even be used to make the fuels that power our cars, trucks, trains, and planes. Coal is the next “super fuel.”
One company poised to take advantage of any growth in the coal-producing industry is James River Coal Company (NASDAQ:JRCC). It is yet another company with shares trading for just a fraction of what they were a few months ago.
Right now, you can get your hands on shares for just less than $20.
In June, they would have cost you over $60. This time next year, they will likely cost you at least that much.
There are two important facts to understand about the coal industry.
First, there is a global coal shortage. Demand far outstrips supply no matter where in the world you go. China, India, Australia, and Russia are desperate to get their hands on more fuel. Fortunately, the United States has over a quarter of the world’s coal supply in our own backyards. Finally, we have the power in our hands.
The second thing you need to know is that once a coal-fired generating plant goes online, it cannot afford to shut down. It will need a continuous supply of coal for decades to come. It is just the opposite of nuclear-operated facilities. A nuke plant only needs fuel every twenty years or so. Coal plants are addicted to fuel.
Combine a nearly constant demand stream with a lack of supply and every economist will say you have a perfect recipe for profits. Throw in a stock price that has been unduly beaten down because of unfounded fears of an industry slowdown and you have an opportunity to score big time as share price rebounds.
James River Coal Company is trading well below dirt-cheap territory. Take advantage of Wall Street’s mistakes and buy shares under $22 while you still can.
An American classic
Finally, there is one more all-American company investors absolutely must know about. This one is truly a Blue Chip selling at penny-stock prices.
Take a look at a chart of Ford Motor Company (NYSE:F) and you will see a history of ups and downs. The company is in the heart of a highly cyclical industry constantly expanding and contracting. But no downturn has ever been as big as this one.
A decade ago shares of Ford were selling for over $37. Today, you can get them for less than $3.
It is the price of a mere cup of coffee at Starbucks and is a price Ford shareholders have not seen since the Reagan administration.
Granted it may be a long time before the company sees shares trading for over $35, but it certainly will not be long until we see them at $10 or even $15.
The domestic auto industry has reached its bottom. It is impossible to argue any other way.
Just look at the deal General Motors and Chrysler are working to create. Obviously, if it can get its hands on Chryslers strong Jeep and minivan lineup, plus billions of dollars in desperately needed liquidity, General Motors will be a major benefactor. But so will Ford.
The auto industry will consolidate. There will be one less major competitor. Prices will begin to rise and margins will increase substantially. This is a deal that could save Detroit and make a lot of smart investors rich along the way.
But there is even better news
Just recently, Congress handed Detroit automakers its own version of a rescue package. It came in the form of $25 billion in loans. The deal gives the automakers an insurance policy that will ensure they make it through this latest cyclical downturn. After all, no politician will ever let Ford go belly up on their watch.
Experts agree by 2010, the nation’s car industry is going to embark on a serious upswing. The cars that Americans bought during the last boom cycle will be wearing out, Detroit will have a new, high-tech product lineup, and customers will once again be walking into showrooms with pockets full of cash.
You can wait for the company to start making big headlines and get shares at $10 or more. Or you can invest at penny-stock prices and hold onto the shares as Ford gets back on its feet.
In less than 24 months, we will be entering the fourth-quarter of 2010. This credit crunch and recession talk will be in the history books. Most importantly, your shares of Ford will be worth three or four times more than they are right now.
Investors have an exciting road ahead. We have made it through the worst of the market turmoil. The economy is going to slow but it is finally back to fundamental investing. No longer will we see wild swings wiping out entire sectors. Now the weak will be eliminated and the strong will flourish.
Invest in the strong companies while their prices are dirt cheap and watch your profits grow as Wall Street figures out how to fix this mess. In just a few years, the credit crisis will be behind us and some huge profits will be in your pockets.
Next Article: Insuring calamity: MGIC Investment Corp. (MTG) shows us how
3 Responses to “Blue chips at penny stock prices”
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December 2nd, 2008 at 8:27 am
well done men, this is very interesting topic
November 20th, 2008 at 4:59 pm
>>One of those companies is General Electric (NYSE:GE). It is one of the most prominent, well-known and successful companies in the world, yet its shares are selling for prices just shy of half what traders were getting one year ago.
In fact, GE has not been this cheap in over a decade. The last two times shares of General Electric were this cheap, investors more than doubled their money in the following few years.
Imagine having the opportunity to purchase shares of the company for just $22 this time last year when shares were peaking at $42. <<
Yeah, imagine, bozo. Imagine it's 12 bucks a few weeks later. Like today.
November 15th, 2008 at 7:44 pm
the only problem is the audio leaked about Obama bankrupting the coal industry . everythin else is great. Thanks