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2014/10/22

Stocks to Buy in a Downturn

Investor Research Institute Daily Newsletter

  Wednesday, October 22, 2014

investorresearchinstitute.com

Stocks to Buy in a Downturn

 

by Jamie Dlugosch

 

I hope you have been buying stocks during this recent downturn.

 

The bull market is far from over despite the scary selling over the last week or two.

 

I implored my paid newsletter subscribers to do just that last Wednesday after the market opened lower and continued to sell.

 

We didn't hit the exact bottom -- who ever does? -- but it proved a wise strategy to add to your equity exposure when there is blood in the streets.

 

There is still time to buy.

 

 

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Perma-bull investor James Paulson, chief investment strategist at Wells Capital Management, has a wise playbook for investors.

 

Whatever moves the market lower -- global growth slowdown, Ebola, Isis -- use the opportunity as a moment to buy stocks.

 

When plunges occur, and they will likely occur again, Paulson suggests selling your defensive positions and loading up on cyclical stocks.

 

Specifically, he likes the industrials, basic materials and beaten-down energy stocks.

 

Another investor doing some buying is John Rogers, Ariel Investments chairman and CEO.

 

One name he likes is Lazard (NYSE: LAZ).The money management and investment banking firm is well positioned for any market.

 

Its restructuring business will profit when times are tough. In addition the growth of its asset management business, now accounting for 50% of its revenues, assures stable cash flows in the future.

 

Rogers started buying Lazard when shares traded in the $30s, but still likes the stock near $50 per share given the stock trades for 14 times next year's earnings estimates.

 

On valuation alone he thinks Lazard deserves to be trading for a premium multiple of earnings compared to the S&P 500. If so, the stock has plenty of room to move higher.

 

Another name he likes is JM Smucker (NYSE: SJM). Nothing complicated here, just a well-run industrial food company with well-recognized brands including Jiffy Peanut Butter.

 

Like Lazard, JM Smucker trades for 14 times forward earnings when most of its peers trade for premium valuations.

 

Smucker is a good stock to own in a volatile market as you are less likely to get hurt here given the consistent cash flows of the company.

 

About the only concern might be the more volatile coffee business and the potential increase in coffee prices. Otherwise, Rogers sees good value in Smucker.

 

Rogers also sees good value in Bristow Group (NYSE: BRS). The company provides helicopter services to the oil and gas industry. Shares were hit hard, like many stocks in the oil and gas sector, with the decline in crude prices.

 

Still, earnings growth expectations are strong and the valuation is cheap.

 

Bristow trades for 14 times 2014 estimated earnings. Analysts at the moment expect the company to grow profits by 17% in 2015. With crude prices forming a base, there looks to be limited downside here and serious upside potential.

 

While anything can happen in the market, owning undervalued stocks is a long-proven winning strategy.

 

Rogers himself previously recommended International Game Technology (NYSE: IGT). That stock did well thanks to a recent transaction.

 

He also was in Janus Capital (NYSE: JNS) before Bill Gross made the move to the company, helping to boost shares significantly.

 

Following Rogers then would be a great strategy for buying stocks during this recent downturn.

 

Jamie Dlugosch

Editor

Investor Research Institute

 

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