It’s rare you get a second chance to buy quality stocks at bargain prices, and now there’s an opportunity get some great stocks cheaply, writes George Putnam III of The Turnaround Letter.
When I was in law school many years ago, one of my professors was fond of saying, “You only get one bite at the apple.” The professor meant that in most legal proceedings, you only get one chance to bring up an issue.
Why is this saying relevant to investing? Because the recent volatility in the market is giving investors a second “bite at the apple.”
A number of interesting stocks are now trading below the levels they reached at the historic market bottom in March 2009. (Even with the recent downdraft in the market, the S&P 500 is still up more than 70% from its March 2009 low.)
Therefore, investors who are kicking themselves because they didn’t bite the apple back in early 2009 now have a second chance.
All of the stocks discussed below have good, solid businesses. Obviously, each one has issues that concern investors, but we think either the problems can be fixed, or investors will become less concerned about the issues, or both. At any rate, we wouldn’t wait around hoping to get a third bite at these stocks.
Computer Sciences (CSC)
A longtime, leading provider of IT services. From a historically strong position servicing US federal government agencies, the company has broadened its scope to include a wide range of global commercial customers.
Recent results and guidance have disappointed Wall Street, but the company’s long-term strategic position looks strong. Cash flow and the balance sheet are both solid.
Dean Foods (DF)
The largest producer of milk and dairy products in the US, it has grown largely by acquisition, and as a result has quite a heavy debt load. Recently, the company has been squeezed by high raw-material costs and weak consumer demand.
Nonetheless, the balance sheet appears manageable, and there are signs that input cost pressures are beginning to ease. Dean’s leading market position gives the stock powerful rebound potential.
Dun & Bradstreet (DNB)
DNB draws upon its nearly 200 million business records to help customers evaluate and manage risks, particularly credit risks.
The sharp contraction of credit markets in the wake of the financial market collapse of 2008-2009 has crimped revenue growth, but operations have remained profitable. International sales are likely to outpace US operations and spur further top-line gains.
The firm’s financials are sound, and the stock looks cheap. The dividend isn’t huge, but it’s better than ten-year Treasuries right now.
Exelon (EXC)
Its $18 billion in annual revenue makes Exelon one of the nation’s largest electric companies.
It operates regulated utilities in Pennsylvania and Illinois, and unregulated utilities serving the Mid-Atlantic and Midwest regions. In addition, it is in the process of acquiring another unregulated power producer, Constellation Energy.
Utilities have been out of favor for a while, but with its stability and good dividend, Exelon could come back into investors’ good graces soon.
Gilead Sciences (GILD)
The dominant bio-pharmaceutical company in the HIV market, with more than 80% of new patients reliant on its drugs. Expectations are high for future growth because of new drugs in the pipeline.
The stock has been held down by news of a Justice Department probe in June and by concerns about the pharmaceutical sector in general. The investigation doesn’t appear to be a big problem, and investors’ views on the drug companies could change at any moment.
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