After the market closed last night, with the Dow Jones Industrial Average rebounding from Monday's notable drop and ending the trading day at 11,397.56, up 266.48 (+2.39%), I posted Serious Money: 10 finance stocks as the market bounces. This is the follow-up post listing the full pool of speculative stocks that as a group I believe will beat the overall market in the next 12 months.
The prediction business is thankless and the speculative business is even worse; it is often painful. I usually refrain from this activity but today I play the contrarian in a Sir John Templeton (RIP) sort of way, jumping into the stock market's worst performing sector with both feet. I believe the market is at or near a bottom and this summer is the time to buy.
Looking for a break in the clouds, yesterday I started choosing ten stocks knowing that three or four may go to zero, a few more will survive with modest gains, and three or four will rise, not returning to their old glory soon but more than covering the ones that fail. The first four picks have been bleeding all over Wall Street for a year now and the blood-letting is not done yet.
Initially I was looking for stocks that had fallen at least 70%. After reviewing my figures, I have compromised and changed that to 63% so that I could include some of the major companies like Citigroup Inc. (NYSE: C) that are broadly held and have strong reader interest. Prices are as of July 29, 2008.
- Citigroup Inc. (NYSE: C) -- $18.45 down 63% from its 52 week high of $49.90.
- Lehman Br Holdings (NYSE: LEH) -- $16.88 down 75% from its 52 week high of $67.73.
- Merrill Lynch (NYSE: MER) -- $26.25 down 67% from its 52 week high of $79.72.
- MBIA Inc (NYSE: MBI) -- $4.92 down 93% from its 52 week high of $68.98.
As previously stated, I am not recommending any single one of these dismal performers, but I am suggesting the pool of ten as an index of sorts. The following six stocks round out the group:
- E*TRADE (NASDAQ: ETFC) -- $3.06 down 84% from its 52 week high of $19.39.
- East West Bancorp (NASDAQ: EWBC) -- $12.46 down 67% from its 52 week high of $20.88.
- Gramercy Capital (NYSE: GKK) -- $6.72 down 77% from its 52 week high of $29.45.
- Newcastle Investment (NYSE: NCT) -- $5.88 down 72% from its 52 week high of $20.88.
- Wachovia Corp. (NYSE: WB) -- $15.70 down 70% from its 52 week high of $53.10.
- Washington Mutual (NYSE: WM) -- $4.43 down 89% from its 52 week high of $39.48.
These companies have lost billions of dollars over the last year in cash and shareholder equity. I do not see any quick fixes or turnarounds, just a slow plodding attempt to return to some sort of equilibrium. As that happens, I expect the worst performing sector to outperform the overall market going forward.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of MBI, NCT & WM.
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