Charles, some time ago you mentioned reading a piece about single digit stocks. I responded that I thought one of the studies I read gave a 3% rebound figure after a year. Found the article referring to it...
Regards,
John
When Stocks Are Too Cheap to Buy
By Nick Olivari
NEW YORK (Reuters) - If it's too cheap, it's probably a bad deal.
Many stocks look attractive -- if not dirt-cheap -- after two years of declines and with widespread expectations for an economic recovery.
But professional money managers warn that some shares are so far from their highs they have no chance of recovering anytime soon -- if at all. Investors who bought those stocks, may have been tricked into what's known on Wall Street as the ''terminal value trap.''
A stock ``may be attractive because of its low valuation, but if there are questionable long-term fundamentals, it can be a trap,'' said Joe Stocke, managing director with StoneRidge Investment Partners LLC., based in Malvern, Pennsylvania, which oversees $1 billion in assets.
Indeed, few stocks ever recover heavy losses, especially if they dip below the magical $10-a-share line. A Merrill Lynch research report issued in April 2001 found only 3 percent of technology stocks that fell below $10 had rebounded to $15 or more within the next year.
``Whenever big businesses start selling for under $10 for prolonged periods, it means they are about to go under,'' said Clif Droke, editor of the Bear Market Report said in a recent note.
And if you're looking for beaten-down tech stocks to regain their Internet-bubble highs -- think again. Some of these stocks need to increase 30-fold to hit their record highs.
Fiber-optics equipment maker JDS Uniphase Inc. (NasdaqNM:JDSU - news) can be had for $5.91 -- down 96 percent from its $153.44 record high on March 7, 2000. What many people don't realize is that the shares will need to climb 2,596 percent to return to their high. |
