Go Fish!
Today's Financial News - Posted August 29, 2008
If you are a fan of fishing for bottom feeders, there are plenty of beaten down stocks. The hard part is figuring out which ones are investment-worthy. Trading expert, Rick Pendergraft reveals a few technical tricks.
by Krista Das
Baltimore — (TFN): Bottom fishers are in luck these days. If you’re a big fan of fishing for beaten down stocks, this is the market to be in. But it’s not as easy as you might think because you can catch a lot of bad fish.
Joining us today is trading expert and managing editor of Investor’s Daily Edge, Rick Pendergraft to tell us how to bottom fish effectively. Rick, welcome to the program.
From a technical perspective, bottom feeder stocks don’t make a strong case for being investment worthy. What else should you look at if you’re considering adding one of these stocks to your portfolio?
Rick Pendergraft: Well, I think you have to dig a little deeper into the fundamentals of companies that have been beaten up ‘cause the reason they’re considered bottom feeders is that they’ve been beaten up, beaten up, beaten up and the stock on a chart is going to look terrible. So you’ve got to be careful there. You’re not going to find anything on a chart that tells you to buy this stock.
So you have to dig a little deeper into the financials. One of the things that I like to look at is the cinema indicators on these stocks. If everyone in the world is bearish on these stocks, at some point they can turn and start becoming bullish. At that point in time they’ll cause a lift in the stock.
A couple things you can look for are short interest ratios. That tells you how many shares are sold short compared to an average daily volume and also the analyst rankings. If you see a stock that – every analyst that follows it has it ranked as a sell, that’s a good opportunity ‘cause all they can do from there is upgrade it and cause the shares to rise.
Krista Das: Okay; good point. The American automobile industry has a lot of beaten down stocks right now. Going along your principles of bottom fishing, which companies would you recommend investing in and which ones would you stay away from all together for the time being?
Rick Pendergraft: Well at this point there’s really only two left in the industry. You’ve got GM and Ford. If you look at the two of them they both have issues and without a doubt, they’re both dealing with a lot of issues from the pension plans, the health insurance of retirees and so forth. They’re kind of bloated with the work force.
But if you look at the two of them and compare the two, Ford has a lot more bearish sentiment towards it than does GM and also Ford has more cash on hand than does GM.
So these are a couple of the things that again, looking deeper into the financials of the company, Ford seems to be in a stronger position financially and then the sentiment towards it, the analysts don’t like Ford as well as they do GM, there’s a higher short interest ratio on Ford.
So if you’re making me choose between Ford or GM, I would say Ford would be the better opportunity at this point in time.
Krista Das: Now going along the same lines, what about the financial sector. Bottom feeders abound. Would you go near any of them?
Rick Pendergraft: No. I just think there’s too much there. There’s still some skeletons in the closet there and I think that there’s more to come out yet. We just see recently the naked short selling directive that was addressed by the SEC that protected the financials for about a month there and we saw a nice climb in the financials. That directive expired last week.
Well now that that’s expired, we’ve seen the financials get beaten up again. Fannie and Freddie were down 20 percent, 18-20 percent on Monday. That just kind of tells you the position that the financials are still in and there’s still a lot there in the closet I think that I wouldn’t go near the financials just yet.
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Krista Das: Is there one sector as a whole that strikes you as a bargain right now?
Rick Pendergraft: Well, I think when you look at the economy in this recessionary period that we’re in – whether we’re in a recession or not, it’s still up for debate, but it’s certainly a slow economic period.
Traditionally the industries that do well during a slow economic period like this is your consumer discretionary – I’m sorry – consumer staples, excuse me – companies like U.S. Tobacco. People are creatures of habit and they’re going to continue their habits regardless of the economic situation.
Coca-Cola comes to mind, Pepsi. Where again, I don’t go a day without my Diet Mountain Dew. So, speaking for myself, Pepsi would be a good product for me to own and a good stock for me to own because I’m going to support that company by buying the Diet Mountain Dew every day.
That’s just the kind of thing that you want to look for is companies that are going to get around, they’re not going to suffer. Their demand for their product isn’t going to suffer as much during a slow economic time period like we’re in right now.
Krista Das: Rick, great information. Thanks for coming on today.
That’s all for today. Be sure to check out Rick’s free e-letter, Investor’s Daily Edge. You can learn more by clicking on this screen or go directly to Today’s Financial News.com.
Until next time here’s to great profits from Smart Investing.
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Next Article: Should the government bailout real estate?
Posted by Krista Das · Filed Under Featured Video, Podcast, US Stocks and Markets, Videos
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