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Companies in crisis are always great buys
2012 Feb 8, 3:10pm 8,333 views 19 comments
by SFace follow (7)
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uomo_senza_nome
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2012 Feb 9, 3:07am
Over the last 10 years of observing the market, companies in short term crisis not related to the fundamentals of the business have always proof out to be great buys
This is true. This regularly occurs because the market over or underestimates the progression of various companies’ operating profits. The fickle minded nature of the masses imply that screaming buy opportunities exist for the keen observers.
Here's an Austrian view of the stock market:
The purchase of DuPont’s stock in March 2009 at $17 was discounting a 600 basis point fall in operating margin. DuPont’s operating profit in 2008 was $3.5bn, and this share price was discounting a fall (over at most three years) to under $1.1bn by then end of 2012. Purchasing the stock at $17 would already discount a collapse in operating profit yet to be observed and run through the tills.
http://bullionbasis.com/web_documents/course_of_the_exchange_first_quarter_2010.pdf
Thanks SFAce. will checkout the stock.
uomo_senza_nome
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2012 Feb 9, 3:15am
SFAce,
I'm curious what is the implied revenue/operating margin collapse dictated by the market as the stock stands today.
zzyzzx
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2012 Feb 9, 3:17am
They are only a great buy if they don't go under. BOA and ETFC fit your description of troubled companies, but have basically been dead money for years.
rimm has a reason to be where it is. They don't have a competitive product anymore.
B.A.C.A.H.
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2012 Feb 17, 4:43am
Companies in crisis are always great buys
Reminds me of a College Professor friend of mine who bought Wang, he called it a "turn around company".
SFace
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2012 Feb 17, 10:52am
Don't like RIMM at all. Went to Bestbuy mobile stores recently and it was basically Apple, Samsung, and MOTR. IOS and Driod. RIMM is hopelessly behind and the consumer will not come back. The commodity (cheap) phone market is not RIMM's strength.
RIMM would be a perfect target for Google, except they already bought Mortorola Mobile so I can't see an acquirer as well.
Which is too bad because "crackberry" started it all. Management's lack of vision killed them. It would be great business strategy topic and I'm sure every business school will be studying the case of RIMM.
Vicente
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2012 Feb 17, 3:17pm
RIMM reminds me of PALM and its slow death. It may get acquired for it's patents, but that's it.
Yes this is about the only reason I could see buying RIMM. There may actually be a play there you know.
I actually bought some TiVO recently. I love their products but they've never managed to turn their great product into a market dominator. Owned it a decade or so ago for several years but eventually got tired of waiting for the stock to DO something. However they hold a bunch of patents and I'm betting that some larger fish will buy them up just to acquire that portfolio.
Comments 1 - 11 of 19 Next » Last » Search these comments
Over the last 10 years of observing the market, companies in short term crisis not related to the fundamentals of the business have always proof out to be great buys. Example,
Merck: Sued
BP: Oil Leak,
The point is they always come back and prove to be great buys. Which leads to Diamond Foods ("DMND")
Diamond is a company in crisis after deferring expenses to pump up shares which they used on an acquiring spree. They apparently did it twice. But I am also fairly confident the problem is limited as I know some people in the SF audit desk. The Board of directors decided to clean house and admit to integrity issues. The fundamentals of the business has not changed that much and it's not like a customer looking to buy some snacks from Diamond thinks about these things anyway.
The thesis is of course there is nothing fundamental wrong with the company, except for integrity. You know how it goes, once integrity comes into question, the new management will be double sensitive and most likely will not be an issue again and probably over do it. It's just a matter of time before the money come back (my observation is money comes back in around 3 -6 months). I will be a buyer of DMND sometimes within the next 3-6 months.