Stock Market Fallen Angels

 

One example of stock market fallen angels are companies hit by sudden problem in its operations. This can sometimes be the best investment around for the average investor. Usually these companies have already proved their value in the past, but suddenly a new line of products in development has shown to be more difficult to produce than anticipated before, and this is causing costly delays which are impacting earnings. Usually this results in several downgrading notes by several investment houses which leads to a general under appreciation by the financial markets. This is a great opportunity for the investor to go around investigating what is really causing the company’s profits to sink. The cause is often the unpredictable nature of the process of research and development of new products. If this is the case we should analyze if the company maintains the characteristics that lead to the previous success. We have to see if the management is still full of talented men and women, wanting to achieve success. We should look for a well structured and productive R&D department, for a well maintained set of production infrastructures, and for a efficient sales and marketing organization. If the company still possesses all the mentioned features, then it will most likely be able to transpose the unpredictable problems and, therefore, return to profitability. Obviously, this set of events would allow us to buy an undervalued stock, that with the return of the favorable winds will grow in earnings and in market appraisal, which will lead us to a fabulous investment return. One good example of this situation is Seagate Technology PLC. This company was facing some headwinds and claims that its technology wasn’t reliable, this allied to a write-off of $2.2 billion, led to a deep devaluation of the stock quotation. The company could be bought at around $10, in 2010. In July 2013, the same stock could bought at around $45, or a appreciation of 350% in 3 years. Not bad!

 

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