Two Buys in Wall Street’s “Half-Off” Sale
11/06/2008 2:00 pm EST
Charles Carlson, editor of the DRIP Investor, finds two good stocks selling at huge discounts after the market crash.
Smart investors understand the dangers of following the herd when stocks are popular, as well as the opportunities that become available when buyers withdraw and stocks are cheap. And stocks are pretty cheap these days.
Indeed, the Standard & Poor’s 500 is currently offering investors a giant “half-off ” sale, with a number of quality stocks available at deeply discounted prices. Of course, given the waves of panic selling that have hit the market in recent weeks, cheap stocks can certainly get cheaper. But an investor needs to approach the stock market understanding two things:
You are not going to buy stocks at their exact bottom. Sure, you might get lucky. But the odds are stacked against you. If you buy quality stocks at cheap prices, eventually you should come out ahead. You may have to endure some near-term pain, especially if you buy during volatile markets. But the investor who is willing to step up and at least nibble on stocks when they are crushed will likely be rewarded for that buying over the long term.
Here are two especially attractive stocks selling at depressed prices.
Best Buy (NYSE: BBY), like many consumer-dependent companies, has sold off sharply of late and is trading [near] its lowest level since 2003. Investors are concerned about consumer spending at a time when the economy is weakening and consumers seem wary of taking on more debt. Still, while Best Buy’s quarterly results may soften a bit in the near term, the company’s dominant market position and prospects for increased market share should help drive ample growth over the long term. [At Wednesday’s close below $27,] the stock trades for just 8.5x fiscal 2010 (ending in February) consensus earnings estimate of $3.14 per share.
Though retailers are likely to be among the more volatile sectors going forward, I like these shares and regard the current price as an attractive opportunity for patient investors. Best Buy’s direct-purchase plan permits initial purchases with a minimum $500.
Transocean (NYSE: RIG)provides offshore drilling services, including deepwater drilling. The stock has come down sharply from its 52-week high of $163 per share despite what should be pretty solid growth for the company in 2008 and 2009. Indeed, per-share profits are expected to come in around $14.44 this year, up from $8.52 per share in 2007. And the consensus earnings estimate for 2009 is $16.16. Based on that estimate, the stock trades at five times earnings [at Wednesday’s closing price of around $80—Editor.].
True, slumping energy prices could impact those estimates, although investors are pricing the stock as if oil prices are going to collapse from current levels. The stock will likely fight some headwinds in the near term along with other energy-related stocks. Still, for pure value, it is tough to beat these shares. Transocean’s direct-purchase plan permits initial purchases with a minimum $500.