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My Stock Value Strategy Starts Now (1 Viewer)

David Dodds

David Dodds

Administrator
We have all watched virtually every stock in existence get crushed downward in 2008. The indexes fell sharply only to recover slightly in December. In my opinion there is deep value in this market as some of these companies have solid fundamentals that were just caught in the stampede.

With that in mind, I used Google Stock Screener to parse out stocks that met the following criteria:

1. Market Cap of less than 300M

2. PE ratio of 5 or less

3. Stocks that lost at least 40% of their value over the last 52 weeks

4. Current pricing is between $1.5 and $3.5

5. Price/Book was 0.60 or lower

This strategy is aimed at finding the little stocks that we have not all heard of that could be poised for huge gains in 2009.

I plan to buy 1000 shares of all the stocks that met this criteria the first thing Friday morning (Full list and today's close listed). Estimated cost is approximately $97,460.

Here will be my no-thought strategy:

1. Buy/Sell these stocks for 1 month. I will purchase all positions on January 9th (Friday) and will purchase then in a reverse fashion (ie first purchase stocks that are down in early trading). I will sell all remaining positions on February 9th starting with those with the biggest cumulative return first.

2. Create limit sale orders at +10% profit per stock. Sell 1/2 the shares

3. Create limit sales orders at +20% profit per stock. Sell 75% of remaining shares.

4. Create limit buy orders at -10% profit per stock. Double shares. Adjust future buy and sell orders based on new average price. For the first double, I will not wait any trading days. After I have 2,000 or more shares of stock, price must be down an additional 10% plus I can not have purchased this stock within 5 days.

My initial thoughts are that low priced stocks usually move at higher percentage points (due to small fractional moves equally larger percentages). I fully expect a lot of these stocks could clear their 10% gains early and am hopeful that even the early bad performers will clear once they have been cost averaged down to more volatile numbers.

I will track this daily to show the current status of things as this progresses. Hopefully I don't make a complete fool of myself.

Here are the stocks that were purchased (1,000 shares of each):

Acorn Energy, Inc. (ACFN) - Price = $2.20

Actions Semiconductor Co., Ltd. (ACTS) - Price = $1.70

Advance America, Cash Advance Centers (AEA) - Price = $1.95

Aehr Test Systems (AEHR) - Price = $2.27

Anthracite Capital Inc. (AHR) - Price = $2.32

Arbor Realty Trust, Inc. (ABR) - Price = $2.96

Benihana Inc. (BNHNA) - Price = $2.55

BMB Munai Inc. (KAZ) - Price = $1.52

Books-A-Million, Inc. (BAMM) - Price = $2.72

Callon Petroleum Company (CPE) - Price = $2.81

FreeSeas Inc. (FREE) - Price = $1.80

Gramercy Capital Corp. (GKK) - Price = $1.52

Grupo Financiero Galicia SA (ADR) (GGAL) - Price = $2.17

KapStone Paper and Packaging Corp. (KPPC) - Price = $2.58

NN, Inc. (NNBR) - Price = $2.87

Qiao Xing Mobile Communication Co., Ltd. (QXM) - Price = $2.78

Qiao Xing Universal Telephone, Inc. (XING) - Price = $1.88

Quiksilver, Inc. (ZQK) - Price = $2.04

Ruth's Hospitality Group, Inc. (RUTH) - Price = $2.18

Silicon Motion Technology Corp. (ADR) (SIMO) - Price = $2.66

Soapstone Networks Inc. (SOAP) - Price = $2.98

Star Bulk Carriers Corp. (SBLK) - Price = $3.09

Telestone Technologies Corporation (TSTC) - Price = $2.30

TXCO Resources Inc. (TXCO) - Price = $2.41

Valassis Communications, Inc. (VCI) - Price = $1.60

Warren Resources, Inc. (WRES) - Price = $2.72

Total cost: $58,550

Edited to show change of philosophy as well as the stocks purchased.

 
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I would have done one more filter - I would have elimated sectors that will be very slow to recover - like auto parts.

 
I can't belive TSTY is not the #1 in a runaway. Trust me on this.

My financial markers:

The world is full of fat folks: check

Fat folks can't help but eat: check

Poor fat folks are lazy/can't afford to buy their own flower & sugar: check

Fat folks have fat fingers and are unable to hold full sized cakes: check

Therefore Tasteycakes is like the rebirth of the early version of DELL or even Berkshire.

Wheatpennies be damned.

ETA: They also have a .20 dividend

 
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bueno said:
I would have done one more filter - I would have elimated sectors that will be very slow to recover - like auto parts.
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I made a small fortune just this week buying and selling TRW Auto stock. I don't want to guess at which sectors can't rebound. In my opinion, when stocks decline by 70-80% they can rebound regardless of what sector they are in.
 
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You might want to screen out the resturaunt industry. Last years earnings will not be this years if half of the predicted doom and gloom comes to fruition.

Good luck.

 
I also predict bad news for Booksamillion and other book sellers. Buying a book is luxury when you can get them for free at the library. Bad economy = bad for bookstores.

People need things, but buying books is never a need (except for a student and they shop at the school bookstore typically).

 
Good thing FBG's isn't publicly traded. I hear that there's some serious competition developing just over the horizon

 
Interesting strategy. I bought 10k shares of GIGM and am waiting for the double. After that I will probably spread it out but with everything so undervalued it will be hard to walk away from loading up on another undervalued stock. There will be recovering stocks for the next 6-9 months IMO and at that time I hope to have banked 100k. Wishing everyone good fortune and prosperity in 2009. :banned:

 
Das Boot said:
David Dodds said:
I plan to buy 1000 shares of all the stocks that met this criteria the first thing Friday morning
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In general, I think you will get slightly better prices if you make your buys Friday afternoon instead of Friday morning.
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Yes that actually makes good sense and will be what I do. A lot of these stocks also have low volumes so I will need to place limit and not market orders. I should still be able to secure all of these stocks sometime tomorrow though. I will probably buy ones dropping earliest starting around 8:30 am PT
 
Das Boot said:
Limp Ditka said:
Das Boot said:
Limp Ditka said:
Good thing FBG's isn't publicly traded. I hear that there's some serious competition developing just over the horizon
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Que?
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:banned:
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Are famous Indian Chiefs involved? :popcorn:
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I shorted this w/ 20k rubles. already 50k rubles up. I'm selling at 56.5k rubles. It will prolly reach 1,000,000 ruble cap and I already have plans to spinoff the competions competion. It's shiploads!!
 
I don't see why you are limiting yourself to stocks in any price range. A 10% increase in value for 40 shares of stock A, at $50/share will net you the same profit as 1000 shares of stock B increasing 10%. It just seems like you are leaving out potential value for the wrong reasons. Also, what makes this strategy any different than the dogs of the Dow strategy?

 
Short Corner said:
I don't see why you are limiting yourself to stocks in any price range. A 10% increase in value for 40 shares of stock A, at $50/share will net you the same profit as 1000 shares of stock B increasing 10%. It just seems like you are leaving out potential value for the wrong reasons. Also, what makes this strategy any different than the dogs of the Dow strategy?
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I don't have proof of this, but I believe smaller priced stocks generally bounce around more on a percentage basis. And that is all this strategy is hoping for. Some percentage movement. I agree you could also implement this without price constraints, without market cap constraints that would target different companies.
 
David Dodds said:
Short Corner said:
I don't see why you are limiting yourself to stocks in any price range. A 10% increase in value for 40 shares of stock A, at $50/share will net you the same profit as 1000 shares of stock B increasing 10%. It just seems like you are leaving out potential value for the wrong reasons. Also, what makes this strategy any different than the dogs of the Dow strategy?
Click to expand...
I don't have proof of this, but I believe smaller priced stocks generally bounce around more on a percentage basis. And that is all this strategy is hoping for. Some percentage movement. I agree you could also implement this without price constraints, without market cap constraints that would target different companies.
Click to expand...
I would just be very cautious going in and make sure you don't need the money for the next 5 years, at least. You may be holding on to some of these for a long time. I would also filter out by dividend and reinvest.
 
P/E ratio is a proxy for expected future growth. However, I'm not so sure it makes much sense to screen on it without thinking about other PE ratios in the same industry. In other words, the company with the lowest PE ratio in an industry has been deemed the one with the fewest growth prospects. The industry with the lowest PE ratio has been deemed the industry with the fewest growth prospects. One way to tease out industry norms is through the equity Beta.

I don't have proof of this, but I believe smaller priced stocks generally bounce around more on a percentage basis.
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I'm not sure, but I think this might say you are onto something.
 
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Short Corner said:
David Dodds said:
Short Corner said:
I don't see why you are limiting yourself to stocks in any price range. A 10% increase in value for 40 shares of stock A, at $50/share will net you the same profit as 1000 shares of stock B increasing 10%. It just seems like you are leaving out potential value for the wrong reasons. Also, what makes this strategy any different than the dogs of the Dow strategy?
Click to expand...
I don't have proof of this, but I believe smaller priced stocks generally bounce around more on a percentage basis. And that is all this strategy is hoping for. Some percentage movement. I agree you could also implement this without price constraints, without market cap constraints that would target different companies.
Click to expand...
I would just be very cautious going in and make sure you don't need the money for the next 5 years, at least. You may be holding on to some of these for a long time. I would also filter out by dividend and reinvest.
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My guess is this whole thing will be finished in less than 4 weeks. A stock valued at 2.00 needs to only go to 2.20 to get to 10%. Many have that type of variation on many days. Even the stocks that are diving, I will be cost averaging down making a small movement a large percentage gain as well. And I expect 5 to 10 stragglers that I may just have to unload at the end to close this chapter. Time will tell, but I anticipate making 6% on this whole portfolio in less than 1 month. Had I bought yesterday at the opening, 4 of the 41 would have surpassed 10% gains yesterday alone.
 
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bueno said:
I would have done one more filter - I would have elimated sectors that will be very slow to recover - like auto parts.
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Wouldnt the opposite be true? I mean wouldnt you think auto parts stock would go up just on the assumption that people are more likely to invest in their current vehicle and fix it up rather than buy a new car that is more likely to run fine for a couple years?
 
Not sure why you're choosing stocks that have gone down 40% in the last 52 weeks. Just because a stock has gone down, that certainly doesn't mean it's going back up.

 
(HULK) said:
I also predict bad news for Booksamillion and other book sellers. Buying a book is luxury when you can get them for free at the library. Bad economy = bad for bookstores.People need things, but buying books is never a need (except for a student and they shop at the school bookstore typically).
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I'd say at least 50-60% of students shun the bookstore and buy online.
 
TheWalkmen said:
I don't want to ruin any of the fun, but you may want to at least take a little time to read some headlines on each company if you're throwing around that much $. I randomly picked just 1 stock (ASFI) and they're facing delisting. I don't think that can be good.

http://biz.yahoo.com/e/090107/asfi8-k.html
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Noticed that as well. I think its a good filter, but anytime we're talking stocks that have taken a hit like this we'll want to do a quick logic test before we invest in them IMO. This may be a detailed process for some, but for most of us I think we're at least capable of scanning recent articles about a stock and seeing if anything jumps out as a red flag.
 
My problem with this, (and this is meant to be constructive):

At LEAST one of these stocks is going to double or triple in value and you will have only realized a 15% gain from it. At LEAST one of these stocks will lose most of its value, and all you did was buy more of it. You have removed most of your upside potential but none of your downside. I think the portfolio as a whole will do well, but at the end of the day you won't be holding the best companies.

 
I just did a quick review on a handful of the listed stocks and one of them really caught my eye.

Gramercy Capital Corp. (GKK) - Price = $1.56

This is a stock that was trading at a high water mark of $35.84 in Feb 2007. And averaging around $15-$20 over the last 5 years. It also pays quarterly dividends.

Can someone who understands trading better than I do please explain why this stock isn't a slam dunk buy?

 
Ten Yard Fight said:
My problem with this, (and this is meant to be constructive):At LEAST one of these stocks is going to double or triple in value and you will have only realized a 15% gain from it. At LEAST one of these stocks will lose most of its value, and all you did was buy more of it. You have removed most of your upside potential but none of your downside. I think the portfolio as a whole will do well, but at the end of the day you won't be holding the best companies.
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I initially read the strategy as dumping stocks once they go down 10% - now that I realize he's doubling down, I'd have the same caution flag. Without knowing the cash flow status of these companies, how do you know they won't be out of business.
 
SkyRattlers said:
I just did a quick review on a handful of the listed stocks and one of them really caught my eye.

Gramercy Capital Corp. (GKK) - Price = $1.56

This is a stock that was trading at a high water mark of $35.84 in Feb 2007. And averaging around $15-$20 over the last 5 years. It also pays quarterly dividends.

Can someone who understands trading better than I do please explain why this stock isn't a slam dunk buy?
Click to expand...
Down another %7 today.
Gramercy Capital Corp. (Gramercy) is a real estate investment trust (REIT) and a commercial real estate specialty finance company that focuses on the direct origination and acquisition of whole loans, subordinate interests in whole loans, mezzanine loans, bridge loans, preferred equity, and net lease investments involving commercial properties throughout the United States.
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I think there are a couple of problems with this strategy:

1) Nothing wrong with scalping profits at +10% and +20%. But to close the entire position at +20% doesn't allow you the chance to maximize profits when one (or more) of your selected stocks hits a "home run" and runs for gains of +100%+.

2) Compounded is that there is no stop loss. In fact the strategy on losers is to double down. That's not smart especially when buying beaten down stocks in a market that is beaten down. There is a high probability that many (perhaps most) will lose in excess of 20%+ in addition some of these stocks will likely become delisted. When you bring the potential of 100% loss vs. 20% gains...you need a high win rate.

*Important rule: Let your winners run and get out of loser quickly

3) Like I just said... Your win rate will have to be extraordinarily high in order to make $. Off-hand I would say you need a win rate of something like 75%+...off a simple Yahoo stock screen...I think that will be tough.

4) Commissions and Taxes will take a big chuck of any profits.

5. 6% per month is a lot easier than this.

6. Sorry to be a downpresser. Good luck with it. Often better than any simple strategy is luck, and you seem to have it. And it won't surprise me to see you have success.

 
mlavwilson said:
SkyRattlers said:
I just did a quick review on a handful of the listed stocks and one of them really caught my eye.

Gramercy Capital Corp. (GKK) - Price = $1.56

This is a stock that was trading at a high water mark of $35.84 in Feb 2007. And averaging around $15-$20 over the last 5 years. It also pays quarterly dividends.

Can someone who understands trading better than I do please explain why this stock isn't a slam dunk buy?
Click to expand...
Down another %7 today.
Gramercy Capital Corp. (Gramercy) is a real estate investment trust (REIT) and a commercial real estate specialty finance company that focuses on the direct origination and acquisition of whole loans, subordinate interests in whole loans, mezzanine loans, bridge loans, preferred equity, and net lease investments involving commercial properties throughout the United States.
Click to expand...
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This seems like the ulitmate risk bet stock. If you think we are through the worst with mortgages then hop on board, or if you think that the next wave of crap to hit will be the commercial real estate loans then stay away. If they have enough capital to survive then this looks like a good bet. Commercial real estate should turn around in 18 -24 months imo.
 
siffoin said:
I think there are a couple of problems with this strategy:

1) Nothing wrong with scalping profits at +10% and +20%. But to close the entire position at +20% doesn't allow you the chance to maximize profits when one (or more) of your selected stocks hits a "home run" and runs for gains of +100%+.

2) Compounded is that there is no stop loss. In fact the strategy on losers is to double down. That's not smart especially when buying beaten down stocks in a market that is beaten down. There is a high probability that many (perhaps most) will lose in excess of 20%+ in addition some of these stocks will likely become delisted. When you bring the potential of 100% loss vs. 20% gains...you need a high win rate.

*Important rule: Let your winners run and get out of loser quickly

3) Like I just said... Your win rate will have to be extraordinarily high in order to make $. Off-hand I would say you need a win rate of something like 75%+...off a simple Yahoo stock screen...I think that will be tough.

4) Commissions and Taxes will take a big chuck of any profits.

5. 6% per month is a lot easier than this.

6. Sorry to be a downpresser. Good luck with it. Often better than any simple strategy is luck, and you seem to have it. And it won't surprise me to see you have success.
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siffoin brings up a good point about closing out entirely at +20%, what about when the stock price goes up to 20% you readjust your exit point?Stock is at $5, original +exit = 6, original -exit = $4.50

Stock goes up to $6, new +trigger = $7.2, new -exit = $5.40

You could still close out half of your position for a 10% (overall) profit and even if it goes back down you will gain another 4% profit making your worst case (when the original 20% trigger hits) for +14%. It might be tough to monitor/manage but it allows you a higher profit % when the stock takes off.

 
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OK,

I had to tweak a few things upon implementation. Some of these stocks have no real volume so I scrubbed them off the list (as getting them at a good price would have been next to impossible by buying 1,000 shares). I started buying in the morning the stocks that dropped the most and I kept adding until I had the entire portfolio.

Here is what I purchased:

Acorn Energy, Inc. (ACFN) - Bought 1,000 @ AVG Price = $2.20

Actions Semiconductor Co., Ltd. (ADR) (ACTS) - Bought 1,000 @ AVG Price = $1.70

Advance America, Cash Advance Centers (AEA) - Bought 1,000 @ AVG Price = $1.95

Aehr Test Systems (AEHR) - Bought 1,000 @ AVG Price = $2.27

Anthracite Capital Inc. (AHR) - Bought 1,000 @ AVG Price = $2.32

Arbor Realty Trust, Inc. (ABR) - Bought 1,000 @ AVG Price = $2.96

Benihana Inc. (BNHNA) - Bought 1,000 @ AVG Price = $2.55

BMB Munai Inc. (KAZ) - Bought 1,000 @ AVG Price = $1.52

Books-A-Million, Inc. (BAMM) - Bought 1,000 @ AVG Price = $2.72

Callon Petroleum Company (CPE) - Bought 1,000 @ AVG Price = $2.81

FreeSeas Inc. (FREE) - Bought 1,000 @ AVG Price = $1.80

Gramercy Capital Corp. (GKK) - Bought 1,000 @ AVG Price = $1.52

Grupo Financiero Galicia SA (ADR) (GGAL) - Bought 1,000 @ AVG Price = $2.17

KapStone Paper and Packaging Corp. (KPPC) - Bought 1,000 @ AVG Price = $2.58

NN, Inc. (NNBR) - Bought 1,000 @ AVG Price = $2.87

Qiao Xing Mobile Communication Co., Ltd. (QXM) - Bought 1,000 @ AVG Price = $2.78

Qiao Xing Universal Telephone, Inc. (XING) - Bought 1,000 @ AVG Price = $1.88

Quiksilver, Inc. (ZQK) - Bought 1,000 @ AVG Price = $2.04

Ruth's Hospitality Group, Inc. (RUTH) - Bought 1,000 @ AVG Price = $2.18

Silicon Motion Technology Corp. (ADR) (SIMO) - Bought 1,000 @ AVG Price = $2.66

Soapstone Networks Inc. (SOAP) - Bought 1,000 @ AVG Price = $2.98

Star Bulk Carriers Corp. (SBLK) - Bought 1,000 @ AVG Price = $3.09

Telestone Technologies Corporation (TSTC) - Bought 1,000 @ AVG Price = $2.3

TXCO Resources Inc. (TXCO) - Bought 1,000 @ AVG Price = $2.41

Valassis Communications, Inc. (VCI) - Bought 1,000 @ AVG Price = $1.60

Warren Resources, Inc. (WRES) - Bought 1,000 @ AVG Price = $2.72

I spent $58,550. The portfolio is down $310 as I type this (I expected the first day to be down as you generally lose in these small cap stocks by buying 1,000 shares at once and not cost averaging in).

 
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David Dodds said:
OK,I had to tweak a few things upon implementation. Some of these stocks have no real volume so I scrubbed them off the list (as getting them at a good price would have been next to impossible by buying 1,000 shares). I started buying in the morning the stocks that dropped the most and I kept adding until I had the entire portfolio.Here is what I purchased: Acorn Energy, Inc. (ACFN) - Bought 1,000 @ AVG Price = $2.20Actions Semiconductor Co., Ltd. (ADR) (ACTS) - Bought 1,000 @ AVG Price = $1.70Advance America, Cash Advance Centers (AEA) - Bought 1,000 @ AVG Price = $1.95Aehr Test Systems (AEHR) - Bought 1,000 @ AVG Price = $2.27Anthracite Capital Inc. (AHR) - Bought 1,000 @ AVG Price = $2.32Arbor Realty Trust, Inc. (ABR) - Bought 1,000 @ AVG Price = $2.96Benihana Inc. (BNHNA) - Bought 1,000 @ AVG Price = $2.55BMB Munai Inc. (KAZ) - Bought 1,000 @ AVG Price = $1.52Books-A-Million, Inc. (BAMM) - Bought 1,000 @ AVG Price = $2.72Callon Petroleum Company (CPE) - Bought 1,000 @ AVG Price = $2.81FreeSeas Inc. (FREE) - Bought 1,000 @ AVG Price = $1.80Gramercy Capital Corp. (GKK) - Bought 1,000 @ AVG Price = $1.52Grupo Financiero Galicia SA (ADR) (GGAL) - Bought 1,000 @ AVG Price = $2.17KapStone Paper and Packaging Corp. (KPPC) - Bought 1,000 @ AVG Price = $2.58NN, Inc. (NNBR) - Bought 1,000 @ AVG Price = $2.87Qiao Xing Mobile Communication Co., Ltd. (QXM) - Bought 1,000 @ AVG Price = $2.78Qiao Xing Universal Telephone, Inc. (XING) - Bought 1,000 @ AVG Price = $1.88Quiksilver, Inc. (ZQK) - Bought 1,000 @ AVG Price = $2.04Ruth's Hospitality Group, Inc. (RUTH) - Bought 1,000 @ AVG Price = $2.18Silicon Motion Technology Corp. (ADR) (SIMO) - Bought 1,000 @ AVG Price = $2.66Soapstone Networks Inc. (SOAP) - Bought 1,000 @ AVG Price = $2.98Star Bulk Carriers Corp. (SBLK) - Bought 1,000 @ AVG Price = $3.09Telestone Technologies Corporation (TSTC) - Bought 1,000 @ AVG Price = $2.3TXCO Resources Inc. (TXCO) - Bought 1,000 @ AVG Price = $2.41Valassis Communications, Inc. (VCI) - Bought 1,000 @ AVG Price = $1.60Warren Resources, Inc. (WRES) - Bought 1,000 @ AVG Price = $2.72 I spent $58,550. The portfolio is down $310 as I type this (I expected the first day to be down as you generally lose in these small cap stocks by buying 1,000 shares at once and not cost averaging in).
Click to expand...
:rant:
 
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