Allow me to be blunt. This isn't the finest hour for growth stock investing. As bad as some indexes have been hit, individual growth stocks have been hit even harder. This became painfully clear to me this morning as I pulled up the scorecard for the Motley Fool Rule Breakers service.
At the risk of freaking out the newsletter's marketing department, let me share some pretty grim facts:
- Nine of the past 10 recommendations are showing double-digit percentage losses.
- The portfolio's total average gain is just 5%. That is better than the relatively flat general market, but it's a far cry from the better than 30% average gain the picks were showing just a couple of months ago.
- In a case of bad timing, a new issue with two new picks went out to subscribers yesterday.
Brother, can you spare a stock tip?
It doesn't have to be that bleak, of course. Actually, though the first two points are absolutely true, the third point may be completely wrong. Good stocks are simply cheaper. That's not necessarily bad timing, and it's not a reason for investors to be scared. If a shirt you liked were finally on sale, would you dismiss it as a faded fashion, or would you snap up the bargain? Remember, it's a shirt you like.
Three for the road
In what is either a courageous or ill-advised move, I am going to lather myself up in Teflon and dive into why three of those nine stocks have tanked so badly. Are they really that hideous? That's up to you to decide. But watch from a safe distance -- and safety goggles are recommended.
Let me start with Headwaters
Investors were then handed a lump of coal as the Section 29 tax credits that the renewable energy sector was banking on stalled. With customer demand looking tenuous, Headwaters trimmed its profit outlook. The company that was looking to earn between $2.60 and $2.75 a share this year opened the trap door to widen the range from $2.00 to $2.70 per share.
Headwaters has seen its stock nearly halved and now sits around $21. Even if it clocks in at the low end of its guidance, we're talking about a proven innovator in a field that matters selling for just 10 times this year's profitability. Am I supposed to fear that and turn the other way?
Next, let's go with InterMune
Shares of InterMune have shed 14% since Charly's nod. Why? Good luck finding an answer. A month after the recommendation, the cash-rich company posted a narrower net loss for the quarter. It is also, naturally, three months further along in the development process of a promising drug pipeline.
The last company that I want to take a closer look at is SuntechPower
Working off far healthier gross margins than other solar power players such as SunPower
Making the most of the malaise
Everywhere you look, you will find companies that have seen their shares plummet despite good news. Apple Computer
Battered investors would be quick to tell you that this is a lousy time to be long in the market. Putting money into stocks, especially growth stocks, would be like tossing money into a black hole.
But you know better. While no one knows the exact moment that the market will bounce back, you only know that it will bounce back. That because it always has before.
So appreciate the marked-down prices. Savor the opportunity to pick up quality, growing companies at significant discounts. While stock prices may head even lower, nailing the bottom is nearly impossible. Just buy attractive businesses at attractive prices. That's step one in successful stock investing.
Bad timing? Yesterday may ultimately prove to have been the best time to announce two new stock recommendations. If you're a current Rule Breakers subscriber, you have online access to the new August issue. If not, you still have time to check out the new issue and read all of the old issues with a free 30-day all-access pass.
Longtime Fool contributor Rick Munarriz has been writing the "Early Adopter Roundup" column since the newsletter's debut in the fall of 2004. He does not own shares in any of the companies in this story. The Fool has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.