3 Ways to Profit From This Panic

The events unfolding in Japan over the past several days are of tragically epic proportions. The human and economic tolls are both staggering and impossible to fully put into words. Our hearts go out to all those suffering.

But, and I say this with all due respect and well-wishing to those suffering in Japan, the market's reaction to the events in Japan has created potentially extreme buying opportunities in Japanese stocks and in the nuclear sector.

Here's why you should be paying attention -- and readying your wallets.

Remember BP?
News sites and networks are practically choking themselves on the flood of mixed information swirling around the status of Japan's stricken nuclear facilities. The news is flying fast, and the future is very uncertain. No one knows the potential short-term and long-term environmental impacts of a potential meltdown. Stocks have been drubbed as a result. The Japanese stock market fell 11% last night following a 6% drop the day before. U.S. stocks have also taken a spill, while stocks with even the most remote connections to nuclear power have been absolutely crushed.

Sound familiar? It should. The market's spastic reaction to Japanese stocks and all things nuclear is an echo of the BP (NYSE: BP  ) oil spill crisis in the Gulf of Mexico. Like the BP crisis, there was great initial uncertainty about the environmental impact. Like BP, politicians and regulators were quick to raise red flags about safety and question the permitting of new projects. And, like BP, stocks that had anything even remotely to do with drilling in the Gulf of Mexico were tarred and feathered.

And what has happened since the depth of the BP crisis? Not only did the once-hyped story wash out of the news cycle over several months, but investors who had the nerve, patience, and long-view mentality reaped huge profits on all things Gulf. Nearly every stock that was pounded has substantially recovered. Even Transocean (NYSE: RIG  ) , which owned and operated the Deepwater Horizon oil rig, has risen 88% off its lows. BP itself is up 68%. Buying at the point of peak uncertainty paid off in spades.

Again, I don't wish to make light of either this tragedy or the one in the Gulf of Mexico. But, as level-headed investors who invest against the headlines, we must stay ready to dive into the pool during times of extreme uncertainty. This is one of those times.

Here are three opportunities that should be on your Watchlist right now.

Opportunity 1: Global Japanese companies
Rooting out opportunities in Japan is almost a no-brainer after its market tumbled 11% last night. Yes, there is great uncertainty around the nuclear situation and Japan's economy has been dealt a very real short-term blow. But, as any experienced investor will tell you, short-term sell-offs can easily produce long-term gains for those willing to go against the grain.

Take Toyota (NYSE: TM  ) , whose shares traded today 16% below a recent 52-week high. Obviously, a one-two punch of a terrible short-term environment for the Japanese consumer and temporarily crippled manufacturing capabilities will curtail short-term results. But keep perspective: roughly 70% of Toyota's vehicle sales take place outside of Japan. Toyota's coffers are stuffed with cash, which would allow it to easily ride out any storms, and it is still well-positioned to capitalize on an eventual recovery in U.S. vehicle sales.

Opportunity 2: Uranium plays
Uranium prices have dropped like radioactive stones over the past couple of days. Naturally, uranium producers' stocks have fallen in tow. This morning, Cameco (NYSE: CCJ  ) , which is among the world's largest producers of uranium, opened off 27% over the past five days. That's a whopping haircut, but still less than the hits taken by small fries like Denison Mines (AMEX: DNN  ) , which is off 34% over the same time period and 11% today alone as I write.

This too shall pass. Will demand for uranium shrink? Hardly. Sure, there's the usual back-tracking and second-guessing around nuclear plants and permitting taking place after a scary period, but an already massive base of demand will continue to figuratively fire on all cylinders. Meanwhile, surging energy demand in countries like Russia and China will continue to create long-term demand growth for this hot commodity.

I don't pretend to know uranium producers very well, especially Denison, but their massive stumble means I need to ramp my learning curve on them in a hurry. Conservative opportunists should Cameco a very close inspection.

Opportunity 3: Nuclear energy producers
Nuclear operators the world over have been dragged down over concerns about how the political and regulatory fallout of the nuclear situation in Japan could curtail expansion plans.

But not only will these diverse, massive operators continue to thrive based solely on their existing assets, but fears of nuclear permits being yanked are almost certainly overblown. Again, remember the Draconian reaction of politicians and regulators toward offshore drilling following the BP spill and the subsequent cooling of tongues.

Southern Co. (NYSE: SO  ) and Exelon (NYSE: EXC  ) stand out as two intriguing names that have traded off a bit on the market's tumults. Exelon, in particular, has been hit hard and offers big upside. Exelon might be the largest nuclear power producer in the U.S., but about 1/3 of its power generating capacity comes from sources other than nuclear. For that matter, the company operates regulated utilities which offer very consistent cash flow and, frankly, have no real exposure to the drama you're seeing on television. Put it all together with a 5% dividend yield and a valuation that already assumes paltry growth, and you're looking at a bargain.

Get these stocks on your watchlist
I don't think stocks at-large are cheap, but this crisis has created some knock-on, panic-driven opportunities that long-view investors might do very well to exploit.

As Warren Buffett is fond of saying, "be fearful when others are greedy, and be greedy when others are fearful." Follow his sage advice and get these stocks on Your Watchlist today.

Joe Magyer is the advisor of Motley Fool Inside Value. Again, his heart goes out to those suffering from the tragic events in Japan. He owns shares of BP and Southern Co. Exelon is an Inside Value recommendation. Southern Company is a Motley Fool Income Investor selection. The Fool owns shares of Transocean. You can follow Joe's musings on Twitter at @TMFInsideValue. The Motley Fool has a disclosure policy.


Read/Post Comments (35) | Recommend This Article (62)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 15, 2011, at 2:10 PM, TexasCoug wrote:

    Yes, but where is the low? It took BP and RIG almost 2 months to hit their lows. I don't think we're there yet.

  • Report this Comment On March 15, 2011, at 2:13 PM, TMFJoeInvestor wrote:

    @TexasCoug: True, though "where is the low?"-type thinking is what kept most investors from landing large returns on the eventual rebound in Gulf stocks.

    My crystal ball is in the shop, but I do think each of these names is worth a close look and a position on watchlists. My favorite of the bunch remains Exelon, which is an Inside Value recommendation.

  • Report this Comment On March 15, 2011, at 3:30 PM, turtle26 wrote:

    Hindsight is 20/20. What's the point of putting this article out with the stocks all off of the lows?

  • Report this Comment On March 15, 2011, at 3:33 PM, TMFJoeInvestor wrote:

    @turtle26: This article published a couple of hours ago. You could have gotten in at better prices if you'd caught it earlier. ;-)

  • Report this Comment On March 15, 2011, at 3:36 PM, TMFJoeInvestor wrote:

    @turtle26: Ribbing aside, most of the stocks I mentioned are still a good slug below their pre-crisis levels and I wouldn't be surprised to see them slip once again. Like I said, great names for your watchlist even if you don't pull the trigger today.

  • Report this Comment On March 15, 2011, at 3:42 PM, jimmy4040 wrote:

    If you're a gambling man, buy longer term puts on alternative energy stocks too.

  • Report this Comment On March 15, 2011, at 3:56 PM, turtle26 wrote:

    @TMFJoeInvestor:

    Ok...so why is the front page of the site showing this article as only 32 minutes old?

  • Report this Comment On March 15, 2011, at 4:33 PM, TMFJoeInvestor wrote:

    @turtle26: That's based on the time it was featured on the top slot of the home page, not when the article actually published. I suppose I could go look at the Yahoo feeds to see what time the article cleared, but that's probably overkill.

    Like I said, the big takeaways here are that some of these stocks, most especially Exelon, are still well below their pre-crisis levels and worth a good look, afternoon rebound or no.

  • Report this Comment On March 15, 2011, at 6:31 PM, turtle26 wrote:

    @TMFJoeInvestor:

    i see what youre saying. anyway, you raise some good ideas here, i did not know any players in the nuclear space besides excelon and will definitely investigate. its not like Japan will recover overnight. thanks for the ideas

  • Report this Comment On March 15, 2011, at 6:34 PM, turtle26 wrote:

    as a matter of fact u may even want to watch the drama unfold a little and see if any investigations or congressional inquiries drive these even further down. bargain hunters may be holding up a better drop yet to come

  • Report this Comment On March 15, 2011, at 6:51 PM, HectorLemans wrote:

    "Yes, but where is the low?"

    I can't speak for every crisis, but I did buy some BP stock very close to its low. Basically, once the media started talking about bankruptcy, I knew the low was near. Sure, things were bad, but oil companies are sitting on a mountain of cash and funnel an Amazon river of cash through them each quarter. I figured the odds of BP going bankrupt were much less than someone making a killing on the depressed share price.

    I'm sure the nuclear industry is different but again - if hyperbole takes over and shares are priced for bankruptcy...I'd say that's a good time to buy.

  • Report this Comment On March 15, 2011, at 7:40 PM, TimothyVR wrote:

    And who knows how long prices will go if the nuclear threats are not contained!

    Wouldn't that be swell?!

    Disgusting stuff. Profit from panic while people are dying and in anguish? I don't think so. The little caveat at the beginng - "with all due respect" puts the final cap on the insult.

    I'm sorry I ever joined this forum.

  • Report this Comment On March 15, 2011, at 8:08 PM, TMFJoeInvestor wrote:

    @TimothyVR: That's a distortion of the article. We obviously would never suggest you profit from others' suffering.

    The companies I recommended looking into here had nothing to do with the causes of this tragedy. For that matter, none of them are players in the nuclear crisis facing the island. These companies are not exploiting Japan or its people in any way, shape, or form.

    Readers come to Fool.com because they trust us to cut through the noise and shoot straight with them on the stocks they care about. That's exactly what I did with this piece as each of these stocks has been pounded.

    This would be a different story if these companies were in any way at fault or were exploiting this tragedy, but that flatly isn't the case.

  • Report this Comment On March 15, 2011, at 8:22 PM, kotobuki wrote:

    It's more than a little disappointing to wake up and see this headline on the fool. Your insensitivity actually makes me nauseous.

    A picture of a finger on a nuke button? A headline, "How to profit from the panic?"

    How about a headline, "How you can use your wealth to aid the disaster." In all your news flashes and headlines, there is little more than your obligatory mention of solidarity and compassion, and no information on the best ways to help, only the best ways to profit.

    I'm not saying put emotion over cool judgment. The panic and fear over here right now is actually becoming a large problem.

    I'm just saying put a little empathy first: a message as to how people might be able to help. Then you can figure out how to get rich.

    I joined the Fool over 10 years ago and this used to be the spirit of it. What has happened?

  • Report this Comment On March 15, 2011, at 8:45 PM, TMFJoeInvestor wrote:

    @kotobuki: Again, I can't stress enough that neither this piece or the companies discussed within are aiming to exploit. There's no sales pitch here -- only objective commentary of stocks in the news and that our readers care about.

    I'm glad you mentioned options for donations. One of my Foolish colleagues spent most of oday researching creative, effective ways for concerned folks to donate. I'll circle back with a link here in the comments section once it publishes.

  • Report this Comment On March 15, 2011, at 9:38 PM, Dave7157 wrote:

    I must admit here I am confused I really do need help in understanding this terrible situation. Should we all be capitalizing on this tragic devastating event in Japan? I know I am thinking just like all of you it's time to reap the rewards. I some how feel guilty doing this. I recently heard over the radio about investors hedging their bets that they have made millions but of dollars doing so before and after this Japan devastation. Not meaning to get people all up tight or down here I just can't figure it all out!!!

    Thanks

  • Report this Comment On March 15, 2011, at 9:50 PM, TMFJoeInvestor wrote:

    @Dave7157: We're not looking to capitalize on a tragedy, but the stock market's short-sighted, fear-driven response. These are two separate issues. If anything, an underlying theme of this article is that the stock market is underestimating the durability of the Japanese economy and the ability of its people to overcome this tragedy.

    Just to hammer this point home, none of the companies mentioned in this article are exploiting the suffering of anyone affected by this tragedy. I wouldn't be shining a light on them if they were.

  • Report this Comment On March 15, 2011, at 9:52 PM, TaiwanPanda wrote:

    Be scared when others are greedy

    Be greedy when others are scared

    I enjoyed this article, keep up the good work!

  • Report this Comment On March 15, 2011, at 9:53 PM, TimothyVR wrote:

    Dave 7157:

    You ask good questions. But you know your own answers.

    If you're not comfortable or have uncertainity about doing something, then ask yourself why. If that changes as time goes by, ask yourself again why again. Listen to your own voice and go from there.

    Don't let anyone else influence you. You know the right thing to do. Too many people ignored that voice in the name of profit in 2008 and before - and look what happened.

    Your own code of ethics is the standard.

  • Report this Comment On March 15, 2011, at 9:57 PM, TimothyVR wrote:

    Taiwan Panda:

    Buffet didn't suggest you throw out ethical standards - quite the opposite..

  • Report this Comment On March 15, 2011, at 10:17 PM, TMFBrich wrote:

    All,

    We've changed the image on the home screen. I apologize for the image we'd originally used.

    What's happened in Japan is tragic and terrible. As Joe mentioned in an above comment, one of our colleagues spent most of today researching the best ways to donate to help the victims (we'll have that piece featured on Fool.com tomorrow).

    However, I'd argue that you can simultaneously be compassionate toward the victims and dispassionate toward the ensuing stock market slump. This article's aim is to speak to the latter.

    Best regards,

    Brian Richards, Fool.com managing editor

  • Report this Comment On March 15, 2011, at 10:30 PM, obga18 wrote:

    while all of you stiffs are sitting on the sidelines questioning your moral judgments im swimming in the deep in of the pool with the people who know when the time is right....

  • Report this Comment On March 15, 2011, at 11:04 PM, lowmaple wrote:

    If your not sure about a low buy shares you like in 3rds

  • Report this Comment On March 15, 2011, at 11:12 PM, lowmaple wrote:

    One way to help the japanese cause could be to donate a large portion of your profits

  • Report this Comment On March 16, 2011, at 12:15 AM, pete4357 wrote:

    Agree with TimothyVR. This article is in poor taste.

  • Report this Comment On March 16, 2011, at 6:43 AM, skypilot2005 wrote:

    kotobuki wrote:

    "It's more than a little disappointing to wake up and see this headline on the fool. Your insensitivity actually makes me nauseous.

    A picture of a finger on a nuke button? A headline, "How to profit from the panic?"

    How about a headline, "How you can use your wealth to aid the disaster." In all your news flashes and headlines, there is little more than your obligatory mention of solidarity and compassion, and no information on the best ways to help, only the best ways to profit.

    I'm not saying put emotion over cool judgment. The panic and fear over here right now is actually becoming a large problem.

    I'm just saying put a little empathy first: a message as to how people might be able to help. Then you can figure out how to get rich.

    I joined the Fool over 10 years ago and this used to be the spirit of it. What has happened?"

    I liked the article and feel it is totally appropriate.

    I went a step further and bought some stocks, as well. I expect to profit from them.

    I hope I don't get a knock on the door and see it is the Politically Correct police coming to write me a citation.

  • Report this Comment On March 16, 2011, at 9:35 AM, shaileshnita wrote:

    Excellent article. Great timing.

  • Report this Comment On March 16, 2011, at 10:51 AM, TMFJoeInvestor wrote:

    As promised, here is a link to a great Fool article on how you can easily and effectively donate to the Japanese relief cause.

    http://www.fool.com/foolanthropy/2011/03/16/donating-to-japa...

  • Report this Comment On March 16, 2011, at 10:54 AM, jimmy4040 wrote:

    Contrarian view. It's a great time to go long Japan on the dips. Pick an etf with the least exposure to their energy industry and ride the whirlwind back up!

  • Report this Comment On March 17, 2011, at 4:28 AM, polenium wrote:

    Investing in nuclear energy companies is not only a 'bad play', it's immoral.

    This is an industry that should never have been and the last thing you should do is give it your hard earned money.

    The Japanese tragedy has only begun to play out. Millions will die from cancers. Parts of Japan may become uninhabitable.

    We have 23 plants just like the ones that are melting down.

    The first rod used in the first reactor is still with us and will be for tens of thousands of years. No one, but no one knows how to dispose of the fuel.

  • Report this Comment On March 17, 2011, at 4:33 AM, thidmark wrote:

    For the second time in less than 12 months, CNN and the rest of the breathless media are going to help make me a crapload of money.

  • Report this Comment On March 17, 2011, at 2:28 PM, Tedward6 wrote:

    Polenium wrote: "Millions will die from cancers"

    Is this a statement of emotion or do you have some expertise regarding radiation exposure?

    As a point of reference: deaths due to radiation exposure at Chernobyl total 50 people through 2005. Chernobyl radiation levels were far worse than anything Japan has experience thus far due to the "once in a century earthquake".

    Here are the facts from the World Health Organization report released 2005 (20 year anniversary of Chernobyl):

    5 September 2005 | Geneva - A total of up to 4000 people could eventually die of radiation exposure from the Chernobyl nuclear power plant (NPP) accident nearly 20 years ago, an international team of more than 100 scientists has concluded.

    As of mid-2005, however, fewer than 50 deaths had been directly attributed to radiation from the disaster, almost all being highly exposed rescue workers, many who died within months of the accident but others who died as late as 2004.

    The link for those interested in the full report:

    http://www.who.int/mediacentre/news/releases/2005/pr38/en/in...

    In the interest of increased knowledge on the subject, I would like to see any scientific evidence for the projection of the death of millions.

  • Report this Comment On March 18, 2011, at 4:37 PM, turtle26 wrote:

    @TMFJoeInvestor:

    You had a great call here. I didn't buy URRE (u did not mention, but it's in the space), because after some research on CCJ, it figured a better long term play. Picked up today....Nice ideas here!

  • Report this Comment On March 19, 2011, at 5:42 PM, lando7886 wrote:

    I understand why come people would be upset about the theme of this article, however the writers job is to inform motley fool's audience about current market plays and ideas. I do think it would have been a nice touch to add donation info in the article but if anything this article can be a way to help japan. The writer is suggesting the people are OVERREACTING and this suggests a BUYING opportunity that would only help japan's economy recover.

    I hope only the best to everyone who has been effected by the tsunami and earthquake and I think the country will be able to recover.

  • Report this Comment On March 19, 2011, at 5:42 PM, lando7886 wrote:

    some*

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