Some investors are pondering whether we have finally passed a stock market bottom, giving them an ideal point at which to benefit from a rising market. Others, however, are pondering something far more interesting and, potentially, rewarding: Is it time to buy phoenix stocks?
Phoenix stocks are near-dead investments that shake off death during an economic recovery, rewarding investors with startling gains. According to Cam Hui, who writes the Humble Student of the Markets blog, some phoenix stocks of the past include Chrysler, which zoomed from $2 (U.S.) to more than $30 in the early 1980s, and Magna International Inc., which soared from less than $2 (Canadian) to more than $80 in the early 1990s.
You find these stocks by running a screen: The candidates have to be low-priced (between $1 and $5), they have to be beaten-up (down by 80 per cent or more in a year), they have to have market capitalizations of $100-million or more (suggesting they were once going concerns), and they have to show signs of insider buying.
When Mr. Hui ran this screen in mid-February, he came up with just 30 names. That total rose to 58 earlier this week. Many are truly frightening places to put money, including Citigroup Inc., Bank of America Corp., Liz Claiborne Inc., Gannett Co. Inc., Great Atlantic & Pacific Tea Co., MGM Mirage and Saks Inc.
See David Berman's Market Blog at ReportonBusiness.com
David Berman