A Green Light to Buy
02/26/2008 12:00 am EST
Louis Navellier, editor of Blue-Chip Growth, recommends a large growth stock he thinks will participate in a big stock surge later in the year.
After a stormy few months on Wall Street, some of the dark clouds appear to be lifting. Last month, I mentioned that for aggressive investors who could stomach the market’s volatility, the fundamentals were just too tempting to pass up. That’s why I dove into the market and bought with both hands.
Overall, the US economy may be teetering on the brink of a recession, but more help is on the way, as Federal Reserve Chairman Ben Bernanke recently indicated in his Congressional testimony. The chaos in the financial sector is essentially causing a massive deleveraging of the US economy, with housing clearly the biggest casualty.
Due to excess inventories of unsold homes nationally, banks and many other financial institutions should continue to post write-downs for the next five to six quarters, since experts do not foresee home prices stabilizing until the second or third quarter of 2009.
I expect a 0.5% cut at the Fed’s March 18th Federal Open Market Committee (FOMC) meeting and another 0.25% at its April 29th–30th meeting. After these additional Fed cuts, most investors should be able to see the light at the end of the tunnel [and] we should see a significant stock market rally leading up to the November presidential election.
All investors should feel that they have the “green light” to buy in this market. In particular, I recommend that more conservative-minded investors dollar-cost average to be fully invested by mid-March to early May. In the interim, as always, our best defense remains a strong offense of fundamentally superior stocks.
Owens-Illinois (NYSE: OI) is the world’s largest maker of glass containers. The company is the market leader in the Americas, Europe, and the Asia/Pacific region. Its major customers include Anheuser-Busch, H.J. Heinz, and SABMiller.
OI recently posted a fourth-quarter loss of 15 cents per share, compared with a net loss of 71 cents a share in the same quarter last year. During the past four quarters, the company’s sales rose 15% to $1.99 billion, up from $1.73 billion. Analysts expected $1.88 billion in sales, so Owens-Illinois posted a sales surprise.
The reason that Owens-Illinois has a loss while posting impressive operating earnings is that it was still liable for asbestos-related cash payments during the fourth quarter, which totaled $120.9 million. (For the full year of 2007, the company paid $347.1 million in claims.) Without this accelerated settlement, the number of new asbestos-related lawsuits and claims would have been down year over year.
Owens-Illinois was able to accelerate its asbestos-related payments due to its improving cash flow, which has impressed many Wall Street analysts who have upgraded the stock. In fact, in the wake of its fourth-quarter earnings announcement, the stock surged 17.1% on multiple analyst upgrades. (It closed just below $57 Monday, not far off its all-time high—Editor.)Subscribe to Blue Chip Growth here…