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A Green Light to Buy

02/26/2008 12:00 am EST


Louis Navellier

Editor, Blue Chip Growth and Emerging Growth

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.)

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