Everyone loves a comeback — here are 13
BENJ GALLANDER and BEN STADELMANN
There's nothing like a spring rally to perk up shell-shocked investors. Since the lows in early March, the TSX is up a lovely 32.6 percent and the S&P 500 36 percent. But outside of the big indexes, amongst companies that already had their share of problems before the recession hit, the comebacks have been far, far more dramatic.
On our Stock Watch List, that tank of contrarian candidates that we prowl for prospects, we see an astounding number of stocks that have doubled, tripled, quadrupled — well, you get the idea. Here are a baker's dozen of phoenixes that have not just risen but soared from the ashes.
Avis Budget Group
Sunrise Senior Living
Suntech Power Holdings
Tarrant Apparel Group
A few observations. None of these stocks are in financial services or home builders, the epicentre of the market meltdown. Though they all undoubtedly are impacted by the recession, investors sold these companies in a panic as if they were preparing bankruptcy filings.
It takes time for the effects of a contraction to percolate through an economy, and corporations do have alternatives to exhaust before throwing in the towel and hearing "Here come de judge." As frightening as the financial news has been the past few months, it isn't reasonable to assume that people are going to suddenly stop reading books, drinking pop or filling their prescriptions.
There has been a lot of commentary recently that in a bear market rally the key thing is to take a quick 15-20 percent gain and run. We beg to differ. Playing badly beat-up stocks requires more mathematical imagination. Though most investors understand that a stock that decreases by 50 percent must rise by 100 percent to get back to even, they don't fully appreciate this concept when it gets stretched.
Take a stock like Select Comfort that traded for years in the $10-$25 range. Its low of $0.19 represents a 98 percent reduction from the bottom part of its range. Sure, a rise of nearly 400 percent is spectacular, but its still only at one tenth of a very modest version of its former self. Looking for pint-size profits in this type of scenario is ridiculous.
We're not smart enough to have bought all these stocks, and frankly, some of them were simply too scary for us to push the buy button. However, we are happy to have Nashua in the Contra portfolio, we both own Tarrant outside, and one Contra Guy had a grand time with Borders, Photronics and Select Comfort. For those lamenting their unwillingness to buy when blood was running in the streets, fear not. In our view, the bear has more growl left, and there will be more buy opportunities like these when people are dumping in despair.