Your Prey for 2006

Posted by Nick Niesen on November 8th, 2010

As 2005 comes to an end, investors celebrate the coming new year and bring new expectation with it. As investors, we try to sell our losing investment before the year ends and sell our winning investments after the new year. This is to receive the benefit of early tax deduction and deferring our tax liability. Either way, after selling your investment, you have some spare cash to invest. Therefore, you would need some idea on where to invest your money.

Scouring the 52 week low is normally a good place to start. Tax loss selling has made many stocks to make the list. This is great for us, small investor. Barring any fundamental news, cheap stocks that get cheaper will be a good investment candidate. Turnaround investors look for stocks that are touching 52 week low and starts researching them. Many of them bounces, providing investors with outstanding return. Examples for this year include: ATI Technologies Inc. (ATYT, up 39% from the low), Seagate Technology (STX, up 29% from the low), Omnivision Technologies (OVTI, up 68.8% from the low) and even Maxtor Corp. (MXO, up 45% from the low before being acquired). Maxtor is now trading 120% above its 52 week low.

While stocks touching new 52 week low, do not always bounce, this is a good place to start your research. Therefore, your prey for 2006 should at least include companies that has recently touched 52 week low. These are several ideas to get you started for 2006.

Pier One Imports Inc. (PIR). The retail stores specializing on furniture and other decorative accessories, are experiencing customer defection this year. Same store sales has been declining and there is little indication that it will change. Warren Buffett used to own a piece of this company. He has since cut back on his stake late this year. It has recently fallen to $ 8.90 per share from the 52 week high of $ 19.98, a 55 % hair cut.

Shanda Interactive Entertainment (SNDA). For overseas exposure, especially China, Shanda should be on your watch list. It provides online gaming to the Chinese community, especially Massively Multiplayer Online Role Playing Games (MMORPG). Don't let the word scare you. It is basically an online gaming portal where it lets gamers fight/play with other gamers. A good way to foster customer's loyalty is through the interaction with other individuals. Online Gaming provides Shanda with that opportunity. It has fallen to $ 15.00 from its 52 week high of $ 45.40, a 67% hair cut. The appealing thing about Shanda is its strong balance sheet (more cash than long-term debt) and the potential growth of its market. Furthermore, the company is profitable. Those cash pile will continue to grow if that happens.

Navistar International Corp. (NAV). This company makes and distributes commercial trucks and busses. Competitors include Paccar, Volvo and the like. It is sporting a forward P/E of 6 and decent balance sheet. If it can maintain a 0% growth in profits, the stock price won't trade at $ 28.80 for very long.

Verizon Communications Inc. (VZ). The largest baby bells of all are having a decent year on the profit line. However, concerns about competitions and high debt load, has reduced its stock price for year 2005. It is currently trading at $ 30.27 per share with dividend yield of 5.30%. Currently, dividend is about half of its annual profit, which is considered safe. If Verizon can repeat its profit performance, the dividend for 2006 will be safe. However, it currently has a high debt load of $ 34.3 Billion. The company has tried to reduce its debt using its cash flow from operations. On Dec 31st 2002, long term debt stood at $ 44.8 Billion. Therefore, balance sheet has actually improved while stock price goes nowhere.

Fresh Del Monte Produce Inc. (FDP). The makers and distributors of fresh fruit produce is not having a good year. Pricing weakness, combined with the higher than expected cost, has decimated its stock price. Recently, management has reportedly hire JP Morgan to run an auction for the company. It can be sold to as high as $ 1.8 Billion according to TheDeal.com. This translates into $ 30.70 per share. FDP recently trade at $ 23.64 per share. If the deal goes through next year, you have the potential of a 29.9% return. However, the fact that management is exploring the buyout, indicates that business aren't so good at this company. If the deal doesn't go through, stock price may see further depreciation.