It takes nerves of steel to buy stocks in this market. Although much of the carnage has passed and is presumably priced into stocks, there is still risk in this market.
Thus far, investors are avoiding those risks preferring the safety of Treasury securities.
Despite the Federal Reserve doing everything in its power to support the economy and to encourage risk-taking, investors are not taking the bait.
What are they waiting for?
Granted, my own analysis of the market suggests that another round of selling may be right around the corner, creating a real buying opportunity in March or April.
That said, in many instances there is no point in waiting or trying to exactly time the market. Many stocks have absolutely caved to the point that there is little downside remaining.
One such stock is AK Steel (NYSE: AKS).
The entire steel space was a favorite of the fast money, global expansion crowd. As such, AKS was a great performing stock during the last few years.
The huge gains all came to a crashing halt in early July when the stock peaked above $60 per share. When the music stopped, the hedge funds bolted. By the middle of September, AKS's valuation was sliced in half.
At that time, I wrote an article suggesting that it was indeed too early to buy. Though the fundamental valuation for AKS was compelling, I felt macroeconomic conditions were deteriorating to the point where it would be likely that selling in AKS would continue.
There really was no hurry to buy at that time no matter how compelling the discount.
I was right on with my advice. Selling of AKS shares accelerated during the credit crisis and continued until the market reached the current bottom on Nov. 20. AKS collapsed to approximately $5 per share.
OK, I can appreciate the concern over global economic conditions, but the selling in AKS was overdone in my opinion. The current pricing is suggesting a worldwide depression of epic proportion.
That is not going to happen. While the current recession may be a bit longer than most expect, it will be nothing of the sort like the Great Depression.
The only conclusion then is that stocks that were overly sold can expect a sharp correction when the economies of the world do recover, even if you have to wait a bit for that recovery.
Today you can buy AKS for about $9 per share. There is an easy double from here in my opinion. It may happen in the next six months or it may happen in two years. But does it really matter when?
I think not. Find your inner nerves of steel and take the plunge.
Jamie Dlugosch is a contributor to InvestorPlace.com.
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Reader Comments (Page 1 of 1)
1-09-2009 @ 2:04PM
Burgundy said...
AKS, like every steel/metal stock got beaten up due to the economic slowdown. BUT, now we have a new President that will pump a LOT of money into the economy through infrastructure, etc. What is used in all highway, bridge, big buildings etc. etc. Yep, Steel. AKS being a U.S. company where the money "should" go is well positioned to get a big share of this funding. The risk is low and the potential reward is huge.