It’s not necessarily about buying what stock is the most hated, although that might be part of it, it’s more about buying what stocks nobody thinks can change.
Really, it’s about buying some of those stocks that are placed in the category as dead and buried when in fact they might just make a transformation and take the stock and the company much, much higher.
Take Netflix for instance, believe it or not, they once mailed out DVDs in red envelopes to movie fans of all kinds all over the country. But if you thought this company wasn’t going to be able to morph into selling movies online over the web to people all over the world, then you wrongly sold the stock. And what’s crazy is how quickly the transformation happened for Netflix. Before you could say Reed Hastings, the company was focused entirely online, with DVD mailings diminishing every month. If you didn’t buy shares of Netflix when it seemed idle or just a DVD mailing company, then you missed the big move higher in the stock. Sure, Netflix had their troubles when they started focusing on online sales versus DVDs (remember the Qwikster fiasco?) but the stock went down to $66 a share and is now $365. That’s well over a 400% move.
Then there’s Apple, who were once thought of has dead and buried, believe it not. But Steve Jobs returned and he borrowed $150 million from Bill Gates and the rest is history. Who would have thought that Apple would go on to sell iPhones, iPods and iPads and go from under $10 a share to over $500 a share?
Take another recent example like Best Buy, where everyone was worried they weren’t going to make it what with people using their stores as showrooms for buying products online at Amazon. Best Buy has had a resurgence and the stock has soared higher going from $11 to $40. New CEO Hubert Joly, a corporate turnaround expert, has cut costs and overcome the showrooming phenomenon. Best Buy started matching the prices of the products of 19 online competitors, and thus getting customers to buy from Best Buy.
And then there’s Hewlett-Packard, whose stock was trading for around $12 a share with a dividend close to 4% and now it’s shot up to over $27. Nobody thought HP could turn their huge employee heavy company around, and certainly not so quickly. Meg Whitman finally seems like the right fit for the company. While HP missed all the upside in the tablet and smart phone revolution, they’re now focusing on the cloud, big data, and corporate solutions. It seems like Whitman isn’t going to make all those crazy billion dollar acquisitions like previous CEOs did for temporary gains. Whitman is looking long term. That’s probably the smartest thing Whitman is doing: she’s not chasing growth but trying to cut costs, streamline and build from within. But the main point here is the talking heads on TV were screaming that HP was over, done, dead. What’s crazy to me is HP kept that fat dividend, too, so if you bought down around $12 then you not only got 14 points but also a payout ever quarter. What’s crucial to a turnaround is the CEO and, if the Street excepts and believes in the CEO.
J.C. Penney is also a left for dead stock/company that’s rebounding as we speak. It has gone from $6 a share to over $10 in a few weeks. But don’t get too excited about JC Penney just yet, it has a long way to go. A few years ago it was trading for around $40 when it hired Ron Johnson, former head of retail for Apple, as its CEO. Of course that didn’t work out so well – the Street lost any faith they had in him when his plan for a more upscale JC Penney didn’t work out. Still, the worst might just be over for JC Penney. Plus, they’ve done away with those free haircuts and are back giving away snow globes. In other words, it’s going back to it’s staid old reliable self. No, but really, there’s hope for JC Penney. However, the company is now facing an SEC investigation over a public offering of stock when it was trying to raise cash. But the transformation for JC Penney is back to its old self.
Be careful though, there are companies like maybe Blackberry, who might just be dead and buried, with very little upside. Still though, there are those dedicated Blackberry users and companies who value security. For that security reason, President Obama still uses the Crackberry. But Blackberry is hoping to sell itself and not looking to return to the glory days when they were called Research in Motion. Blackberry tried to copy Apple with their touch screen technology when maybe they should have focused on their core market, those people who like the keyboard and the security aspect of their emailing service. Now, this is a dead stock and story most likely because they’ve almost conceded defeat. There’s no new CEO coming in that wants to revive this company, at least at this point. Often, a company is dead and buried when their last gasp effort is try to copy their competitors. Sure, Microsoft does this all the time, but they have money to burn, Blackberry doesn’t. Right now, Apple has 40.4%, Android has 51.8% and Blackberry is third with just 4.3% of the smart phone market share. And this subscriber base is dwindling for Blackberry, off .7% from the previous month. Obama might be the last Blackberry users left when it’s all said and done.
And if you bought any stock in Borders, the bookstore, yes there used to actually be books stores, then you lost a lot of money when they went bankrupt. Borders wasn’t going to make it what with an iPad and a Kindle in everyone’s hand. The truth is you don’t know if a company is going to survive or fail. There’s no crystal ball, but when an industry is going digital, it’s best not to buy a brick and mortar store that sells books.
Right now, it looks like the gold miners and the coal stocks are the most hated ones on Wall Street. They’re left for dead. Are these gold miners or coal companies wore take a shot at or are they going to actually get buried? These aren’t companies they can really transform. One digs for coal and one digs for gold. That’s not going to change. But, they might just be so hated that they’re worth a look. What will pollution becoming an ever-increasing problem in China; you’d think they might stop burning coal. That’s doubtful though. To me, there’s a gold miner that’s worth owning. Gold after all isn’t like Bitcoin, it’s a real thing that people wear on their fingers, necks and wrists. But gold miners do have other risk factors, whether it’s strikes or unrest in the country where they mine gold. Hedge fund manager David Einhorn owns gold just in case “things go haywire”. Einhorn owns 9 million shares of the gold ETF GDX, which is hovering around its 52 week low. With the gold miners left for dead, the GDX might be a safer way to invest in the gold, since you’re not just betting on one company who could suffer from a strike or mine disaster.
Overall though, it’s about finding those stocks/companies that can transform. Often it takes a new CEO to lead them to walk among the living above ground, but it might also take the form of a new strategy but probably NOT taking over another company and trying to buy growth. Look for cost cutting and companies trying to make customers happy, not arrogance. Look for companies who stick with their core values and aim to streamline their businesses.
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