The market is turning. It was up earlier this year, then 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
You won't find long-term value by following short-term price fluctuations in the entire market or an individual stock. No matter what the overall market's situation, there are always good companies trading at a discount.
Take a look at these six companies:
|
Company |
April 2006 Price |
Current Price |
Discount |
|---|---|---|---|
|
Sohu.com (NASDAQ:SOHU) |
$26.43 |
$21.16 |
20% |
|
Corning (NYSE:GLW) |
$27.53 |
$23.04 |
16% |
|
Whole Foods Market (NASDAQ:WFMI) |
$64.49 |
$45.60 |
29% |
|
Netflix (NASDAQ:NFLX) |
$28.13 |
$23.78 |
15% |
|
BJ Services (NYSE:BJS) |
$34.20 |
$28.29 |
17% |
|
Applied Industrial Tech (NYSE:AIT) |
$29.21 |
$24.66 |
16% |
I've had my eye on these companies for a while. Each of them has an intriguing business model, and each has a history of returning value to shareholders. And now, they're all much cheaper than before. The discount might stem from concerns of a flagging trend, from uncertainty about Whole Foods' ability to profitably integrate its acquisition of Wild Oats, or from doubts that Netflix can combat the combined competitive forces of Apple and Blockbuster (NYSE:BBI). But if you continue to have faith in these companies, you should take full advantage of their fallen prices.
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, after which 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. Overall, Philip's Inside Value picks have been worthy thus far -- they're beating the market by more than 7 percentage points since the newsletter's inception in September 2004. To see his two newest bargain-priced stock recommendations and more than 30 other buy reports for free, click here for a no-strings-attached 30-day trial.
Remember: You never know what the market's going to do. 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. Whole Foods and Netflix are both Motley Fool Stock Advisor recommendations. The Fool has an ironclad disclosure policy.
