The market is turning. It was up earlier this year, and then it took a huge swing down. It turned back up, but what's going to happen next? It's going to turn down again. As always. That's not the skeptic in me speaking, that's the truth. The market is always fluctuating.
But that's why there are always values to be found.
The upside of downside
Trading based on short-term price fluctuations in the market or a stock isn't the way to find long-term value. No matter what the overall market's situation, there are always good companies trading at a discount.
Take a look at these seven companies:
|
Company Name |
June 2006 Price |
Recent Price |
"Discount" |
|---|---|---|---|
|
Circuit City |
$28.57 | $19.01 | 33% |
|
Marvell Technology Group |
$26.23 |
$19.97 |
24% |
|
Select Comfort |
$21.91 |
$17.23 |
21% |
|
AnnTaylor Stores |
$39.71 |
$32.95 |
17% |
|
Wild Oats Markets |
$16.68 |
$14.30 |
14% |
|
Archer Daniels Midland |
$38.17 |
$32.78 |
14% |
|
Corning |
$21.63 |
$18.94 |
12% |
Each of these companies has had a history of improving returns on invested capital, with each one having the highest ROIC that it has had over the past five years -- which means their businesses are becoming more efficient and successful. And now, each of them is trading for significantly less than where they were just six months ago. If these are companies you continue to have faith in, then you should take full advantage.
So what does this prove?
- Every stock goes on sale, so you must ...
- ... have a wish list of investments with rough buy-below prices for your appropriate margin of safety. With a wish list ready, you can pounce when ...
- ... the price is right -- and most of the time, the market will beat down on your stock at some point, giving you an optimal entry point.
Fool's final word
The market is turning -- soon enough it will turn back down. And then it will proceed to go back up. But when you're investing for the long term, a short-term price drop is the best thing you could ask for. That's the time to buy at full speed.
At least that's what Philip Durell, the Fool's very own value-digger, told me. As advisor for the Motley Fool Inside Value service, Philip uses short-term panics to snap up worthy long-term investments. In the past, he's recommended winners such as MasterCard, which has gone on to double in value. Overall, Philip's Inside Value picks have been worthy thus far -- they're beating the market by seven percentage points since the newsletter's inception in September 2004. To see his two newest bargain-priced stock recommendations and the more than 30 other buy reports for free, click here for a no-strings-attached 30-day trial.
You never know what the market's going to do, so be prepared before it turns.
This article was originally published on June 24, 2006. It has been updated.
Fool sector head Shruti Basavaraj does not own shares of any company mentioned above. Select Comfort is a Motley Fool Hidden Gems pick. The Fool has an ironcladdisclosure policy.
