We are entering the holiday season with the financial crisis still at large. With so much damage already done in the stock market, many stocks have become way undervalued. Value Investing is the best way to make money while hitting rock-bottom prices.
My mission was to find three consumer-based stocks that are largely undervalued and will do well in the next 9-18 months. Although many analysts have knocked down companies’ stocks because they expect weak 2008 holiday sales, the magnitude of these drops in stock prices has been greatly overstated.
When the market rebounds, so will these stocks. Also, when the individual companies begin to beat earnings estimates again, the stocks will go even higher. This process will take a long time, but if you have patience, investing in these stocks will make your portfolio shine.
3 Rocking Stocks to Buy Before Christmas 2008:
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- Bare Escentuals (BARE)- This natural cosmetic and skin care company has all of the right stuff. They are well positioned in a number of cosmetic stores like Sephora; they also have their own retail and catalog sales. Being natural gives them the eco-friendly and healthy image that so many consumers are looking for. Since they only have a market cap (market value) of $412 million, they have a lot of room to grow compared to Estee-Lauder (EL) with a $5.6 billion market cap. At $4.50 a share, BARE’s stock has an extremely low P/E of 4.2x earnings. Once the economy picks up again, this company is poised to take some serious market share.
- Harry Winston Diamonds (HWD)- The famous, ultra-luxurious jeweler has suffered recently because even the wealthy are feeling the pinch. The name of this company carries a certain prestige that I believe will last forever. At $4.02 per share, this stock has a P/E of 1.3x earnings! That’s almost as cheap as stocks can get. To make the stock a little more attractive, HWD has a nice dividend as well.
- Macy’s (M)- Macy’s has struggled with this market like most department stores, but this 150-year-old store is still in excellent financial shape. They are not riding on tons of debt like many of its peers do. Macy’s stock price has a P/E of 4.2x earnings at $7.03 per share. They will come out of this economic crisis just like it did in the past.
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Keep in mind that in a normal stock market, most stocks trade at P/Es between 12x-20x earnings if they are not a high-growth company, so even if the companies’ earnings are mediocre, then the stock market will price these stocks at this range when the bear market begins to disappear.
It’s hard to lose when you buy stocks that are priced at rock-bottom prices and have great potential in the future. Remember that you must be willing to wait out the storm with these stocks, and you can thank yourself later.
Jared Schneider
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