Now Is a Great Chance to Buy My 3 Favorite Stocks

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We're inching ever closer to an official" market correction ." The S&P 500 is down almost 10% from its recent peak, which means we'll soon hear that phrase bandied about in the financial media. 

These pullbacks are painful but bring a silver lining: good companies see their stocks pushed down to levels that create even deeper bargains for investors. 

I've been scanning themarket in search of these newly-uncovered bargains, but am also keeping an eye on the stocks I know best -- the ones in my $100,000 Real-Money Portfolio . These are my top stock ideas, and though I could add a fresh stock pick to this portfolio, I'd rather own even more of my favorite stocks, especially now that external events have forced them down along with thismarket . In a few minutes, I'll tell you exactly what I'm planning to buy with my spare cash...

An excuse to sell
There are only two kinds of stockmarket environments. The first is in which any news is seen in a positive light, and a company can deliver bad news and not see its stock punished. The second is in which investors fail to respond positively to good news and instead look for reasons to sell a stock -- sometimes sharply. That's where we are right now. It's no fun thinking about buying stocks in such an environment, but it's thatcontrarian positioning that allows you to outperform the market over the long haul.

The trading action in Cree Inc. (Nasdaq: CREE ) is instructive. The company's chief financial officer (CFO) a nnounced plans to leave the firm, pushingshares down 9% on Tuesday, May 22, and down nearly 20% in the past two weeks. 

Any time you see an executive leave a company -- especially the person in charge of finances -- you should take note. This can be a red flag thataccounting troubles are brewing. Yet in this case, there is a far more prosaic explanation: Cree's CFO is anxious to take on a greater management role, which he will soon have with a new employer. The fact that he plans to stick around as a consultant until mid-June tells you he's not leaving a house on fire.

This stock is now down to levels not seen since early February, and it's too much for me to pass up. Even as I expect more choppy results in the next few quarters (which could push the stock even lower), I also keep sight of the fact that Cree's long-term outlook is very bright

Ignoring the good news
We learned this week thatbond- rating agency Moody's has boosted Ford Motor's (NYSE: F ) debt toinvestment grade . The fact that the upgrade comes during a tough stretch for the globaleconomy tells you just how healthy Ford is . And the move isn't just symbolic. An investment-grade rating gives Ford even greater financial flexibility and should allow it toswap out high-yield debt for lower-yielding debt, saving millions in borrowing costs. And after Ford has shored up its pension fund, the company will have a much freer hand to initiate a major stock buyback ordividend boost. Even as Ford's stock got a modest pop on the news, investors are still largely avoiding this stock, as it hovers near its lows for 2012.

Guilt by association
Even when companies deliver no news, their stock can still get punished. The trading debacle at JP Morgan (NYSE: JPM ) has put fresh pressure on all banking stocks , including Citigroup (NYSE: C ) , which is now down nearly 25% since the middle of April. 

More than $25 billion inmarket value has simply vanished. The fact thatshares now trade for roughly half of their projected year-end tangiblebook value is simply stunning. I've always known this stock will hit speed bumps on its way to a much higher share price, but the current valuations strike me as absurd. 

 

Taking action
In response to the ever-lower share prices for these companies, I am playing offense. First, I am adding 100shares to my current 300-share position in Cree. That's a possibly risky move in light of the fact that this company is struggling to meet quarterly forecasts right now, but my 1-2 year time horizon makes me less concerned.

Second, I am adding 100 shares to my 300-share position in Citigroup. This stock is roughly 20% lower than where I first bought it, even though Citigroup's longer-term prospects remain quite bright. 

Lastly, I am not adding to my 1,090-share position in Ford. It's already my largest holding, and it would be unwise to have even greater portfolio concentration in this stock. It's a bummer, because shares of Ford below $10.50 are a compelling value in light of the company's current balance sheet and projected mid-decade income statement

Risks to Consider: I'm wise enough to know that a bottom may not be in for this market. These buys might be premature. But I need to pounce on value and not act as a market timer.

Action to Take --> As noted, I will buy 100 additional shares of both Cree and Citigroup. Please also note that I may send out a short e-mail in coming days announcing plans to sell my 300 shares of the Direxion Daily Small CapBear 3X ETF (NYSE: TZA ) . The current wave of selling may soon exhaust itself, and I'd like to free up that cash for fresh buys. (If you haven't already signed up to receive my latest updates (which are currently at no cost to you), then I highly urge you to do so by following this link . This market can turn on a dime, and you'll want to be on top of things in order to strike while the iron is hot.)


All prices are as of Wednesday, May 23.
Security (Ticker) Shares Initial Purchase Date Avg.
Purchase Price
Recent Price Current Value Buy Under Target Total Return
Ford Motor ( F ) 1,090 01/04/12 $11.44 $10.35 $11,282 $13 $20 -9.6%
Alcoa ( AA ) 500 01/06/12 $9.32 $8.37 $4,185 $12 $16 -10.4%
Cree ( CREE ) 300 01/12/12 $23.22 $25.64 $7,692 $25 $40 10.3%
Exide ( XIDE ) 1,500 02/01/12 $3.41 $2.33 $3,495 N/A N/A -31.9%
Citigroup ( C ) 300 02/06/12 $33.28 $26.27 $7,880 $36 $50 -21.2%
Ligand Pharma (LGND) 350 02/13/12 $14.87 $11.30 $3,955 $17 $30 -23.9%
Marathon Oil (MRO) 200 02/24/12 $35.01 $23.97 $4,794 $40 N/A -31.6%
Direxion Small Cap (TZA) 300 02/29/12 $18.42 $23.02 $6,905 N/A N/A 24.8%
Calgon Carbon(CCC) 400 03/14/12 $15.38 $12.93 $5,172 N/A N/A -16.1%
Echelon (ELON) 1,000 03/30/12 $4.51 $3.42 $3,420 $7 N/A -24.3%
MDC Partners (MDCA) 500 04/09/12 $10.57 $9.31 $4,655 N/A N/A -12.2%
Freeport-McMoran (FCX) 200 04/24/12 $37.00 $31.47 $6,294 N/A N/A -15.1%
Zoltek (ZOLT) 600 05/11/12 $9.16 $7.38 $4,428 $11 N/A -19.6%
Weatherford Industries (WFT) 500 05/21/12 $12.48 $12.40 $6,200 $15 N/A -0.8%
 
  Security Holdings $80,986        
  $ Cash Holdings $6,184      
  Total Return since January 2012* $87,170     -12.8%
* Individual security returns are shown as of the date each security was added to this portfolio. However, total returns for the portfolio and the S&P are listed since the portfolio was funded with $100,000 of real money on Jan. 4, 2012.

Visit this link to view a listing of all previously-closed $100,000 Real-Money Portfolio holdings.


-- David Sterman

David Sterman does not personally hold positions in any securities mentioned in this article. StreetAuthority LLC owns shares of CREE, F, TZA, C in one or more if its "real money" portfolios.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

© Copyright 2001-2010 StreetAuthority, LLC. All Rights Reserved.


This article appears in: Investing , Stocks

Referenced Stocks: AA , C , CREE , F , XIDE

David Sterman

David Sterman

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