Great Buys Now... Unless You Believe in Armageddon
By Dr. Steve Sjuggerud
August 28, 2007
Right now, some sectors of the stock market are as cheap as they've been in 17 years.
If you were bold enough to buy these sectors the last time they were this cheap, you would have made four times your money in less than two years... And if you had held on for three years, you'd have made six times your money!
I'm not talking about just one stock... I'm talking about an entire sector of stocks. Obviously, some stocks did better than others. Today, I'll share with you two sectors that are trading as cheap as they've been in an extremely long time. I personally believe triple-digit profits are likely in these entire sectors... IF you're bold enough to buy them. That could be a big "if." Because...
If you've been a DailyWealth reader for a while, you know that we look for "hated" or "left for dead" assets. The reason we like hated assets is... This is often where the value is. When people have left it for dead, it's probably cheap!
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The hard part is distinguishing the ones that deserve to head to the scrap heap versus those worth owning. For example, in 2001, Internet stocks looked cheap based on their short histories. But many of them deserved to head to the scrap heap.
When buying crashing assets, one thing we do to put the odds in our favor is simply wait... Instead of trying to pick the bottom – instead of trying to catch a falling knife – we wait until the knife has struck. We buy when we are comfortable that an uptrend has started.
So what is hated now? What is cheap?
Those answer are easy... you hardly need fancy computers to figure this out. Between the real estate rout and the subprime mess, two sectors everyone is avoiding right now are homebuilders and banks.
Right now, banks have the highest dividend yield they've had since the beginning of 1995. If you had bought then, in two and a half years, you'd have made 250%. On a price-to-earnings and price-to-book basis, bank stocks are as cheap as they've been since mid-1996. If you'd bought then, you'd have doubled your money in two years.
The story is similar for homebuilders... Homebuilders are as cheap as they've been since the last major recession some 17 years ago. Again, you'd have made four times your money in two years and six times your money in three years, if you had bought homebuilders the last time they were this cheap.
You might be surprised to hear that, even though I believe these extraordinary gains are possible – I really believe triple-digit gains in both of these sectors are not far off – I haven't pulled the trigger yet. In short, I don't want to try to catch a falling knife here...
I know that, while these stocks are very cheap right now, they can get a lot cheaper... 17 years ago, in the last recession, bank stocks became much cheaper than they are now. That was a ridiculous buying opportunity.
Shares of bank stocks are trying to find a bottom. We might be close. The falling knife of homebuilding stocks doesn't seem to have stopped falling yet.
In order to buy with the least risk, we're going to buy these great values once we see evidence that the fall is over... once the knives have settled.
Subscribers should be setting aside some cash to buy these. I sincerely believe triple-digit gains are likely in these entire sectors. If we can manage to pick a few decent names in these sectors, we could do even better...
Unless you believe financial Armageddon is around the corner, these things should be great buys very soon...
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