Hilary Kramer, chief investment officer at A&G Capital Research, New York City, and editor in chief of the subscription newsletters GameChangers and High Octane Trader. She is an investment analyst and portfolio manager with more than 30 years of experience on Wall Street and publishes seven investment newsletters. HilaryKramer.com
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Even though stocks have plunged in share price, it’s not easy for investors to find great bargains in today’s bear market. Many companies’ valuations still don’t look attractive, and it could take the stocks a long time to recover.
Top investment expert Hilary Kramer’s solution: Hunt for bargains among stocks that have slipped below $10 per share. This is where Kramer finds what she calls “fallen angels”—companies with healthy business models and promising growth prospects that fly under the radar because Wall Street analysts have typically stopped following them. Many institutional investors won’t consider investing in stocks below $10. But if you wait patiently for these stocks to climb above the $10-per-share mark, those same institutional investors often jump back in and the prices can soar.
Bottom Line Personal asked Kramer to scour the more than 3,000 companies now in the low-priced stock bin. She found 10 potential winners including an equipment maker for deepwater oil exploration…a Brazilian digital financial services firm that’s a favorite of Warren Buffett…and one of the largest fruit-and-vegetable distributors in the world.
Barclays (BCS). It’s rare for a blue-chip international bank with about $1.5 trillion in assets to go on fire sale. Since the Great Recession, Barclays has survived the uncertainty of Brexit and a decade of near-zero interest rates. But its stock took an especially large hit this year from investors after it delayed a $1.2 billion share buyback and analysts worried that a recession in the US and the UK would hurt business activity for the bank. I think a recession has been more than priced into the bank’s recent share price and valuations. Rising interest rates should help boost Barclays’ profit margins, and it has been aggressively growing its presence in the US. A recent dividend yield of 4.11% provides a decent cushion. Recent share price: $7.79.
Chimera Investment Corp. (CIM). This high-yielding real estate investment trust (REIT) doesn’t own commercial property. Instead, it invests in mortgage-backed securities—bonds composed of bundles of residential mortgage loans. Higher interest rates and wider credit spreads represent potent opportunities for Chimera to grow its portfolio. The stock is down 25% this year due to fears that loan defaults on mortgages could rise in a recession. But this REIT is a well-managed, cash-generating machine that has made regular shareholder distributions every single quarter through the last two bear markets. Recent yield: 12.61%. Recent share price: $10.47.
Dole (DOLE). The iconic leader in canned fruit and vegetables with more than 300 products had $6.5 billion in revenue last year. In 2022, however, the company faced multiple challenges—a strong dollar depressed revenues from US exports…a Listeria outbreak in its packaged salads division resulted in a $60 million voluntary recall…and global dislocation of markets and inflation in connection with the Russia–Ukraine war forced the company to lower its annual earnings estimates. Dole has lost half its market value since mid-2021. The stock is a bargain at these levels, especially with a recent 3.38% dividend yield. Recent share price: $9.37.
Generation Income Properties (GIPR). Shares of this REIT have held up better than most traditional property REITs this year. Generation Income owns a multibillion-dollar portfolio of small but essential properties, such as convenience stores and strip malls, stretching from Tampa to Tucson. Its tenants, including Starbucks, 7-Eleven and Sherwin-Williams, are locked into long-term contracts that rise with inflation. The company is using the downturn to find attractively priced properties. It recently closed on a 30,000-square-foot retail building occupied by Best Buy in Grand Junction, Colorado. Generation Income’s recent yield, well-supported by earnings, was recently 10.54%. Recent share price: $6.17.
GrafTech International (EAF). The small industrial manufacturer is an essential supplier to the steel industry. It is a global leader in graphite electrodes, the main heating element used in furnaces that melt down scrap from old cars and appliances to produce new steel. Concerns about earnings slowdowns due to Western economic sanctions against Russia knocked down GrafTech’s share price 35% this year, even though both sales and earnings are up year-over-year. The real gem: GrafTech has a secondary business that I think will help power growth in the next decade. The company is a major producer of needle coke, a petroleum-refined material that is critical in the manufacture of lithium-ion batteries for electric vehicles. Recent share price: $7.70.
JOANN (JOAN) is a popular chain of 850 “hobby” retail stores in the US. It sells affordable arts-and-crafts items such as fabrics and supplies for sewing and jewelry-making, as well as home-decor products. The company has been hurt by severe supply-chain disruptions since most of its merchandise is manufactured overseas, plus the impact of excess ocean-freight costs has reduced earnings estimates in 2022. But consumer interest in home hobbies rose during the pandemic and should hold up in a recession as consumers look for do-it-yourself ways to save money and pivot to handmade gifts and furnishings. The nearly 80-year-old company has successfully navigated many economic down cycles, and its strong free cash flow means you collect a dividend yield of 4.93% as you wait for the stock to recover. Recent share price: $9.04.
Nu Holdings (NU). When the Brazilian financial-tech firm went public last year, Warren Buffett invested $1 billion. Nu offers Internet banking services through its mobile app, as well as credit cards, digital payments, even insurance, to nearly 60 million customers. The company is using technology to disrupt that region’s large retail banks that charge high fees to small businesses and consumers, leaving large portions of the population without even a basic bank account. I believe the move from paper to digital cash is a powerful global trend regardless of the economic or inflationary environments in countries. In the first quarter of 2022, Nu generated record revenues of more than $877 million. Ignore the short-term volatility, and trust in Buffett’s investment acumen. Recent share price: $4.21.
Palantir Technologies (PLTR). Investors want nothing to do with aggressive tech stocks these days, but Palantir is a special case. It uses artificial-intelligence software to analyze digital information including billions of documents, transactions and e-mails. In 2022, Palantir’s stock has been decimated because of some inconsistent financial results, as well as a reputation for enabling law-enforcement agencies to snoop on citizens. But I think the future of the company—beyond governments, the military and spyware—is misunderstood and compelling. One of Palantir’s software tools, Foundry, supplies big-data analytics to Fortune 500 corporations for commercial purposes. It’s a major growth industry. Foundry already has aided JPMorgan Chase in spotting cyberfraud and helped Hershey increase chocolate profits. Recent share price: $10.35.
Transocean Ltd. (RIG) commands one of the largest deepwater fleets in the world, renting out dozens of floating rigs to oil companies in West Africa, the Gulf of Mexico and the North Sea. The company has struggled to profit over the past decade as energy firms slashed spending on deepwater exploration and investors focused on booming US shale drillers. But with oil prices likely to remain high for the foreseeable future and supply tight, demand for rigs is increasing. Transocean’s contract backlog value of $6.1 billion is among the highest in the industry. The firm just won a $181 million extension for its harsh-environment rigs from Norwegian oil giant Equinor. Recent share price: $3.38.
Weber (WEBR). If you have a charcoal, gas or electric grill, chances are it’s a Weber. Although the company’s roots go back to 1887, it had the misfortune to go public in 2021 just as global supply-chain slowdowns began to hurt Weber’s quarterly earnings. Its share price now is 55% below its IPO price. Why that’s a huge investor overreaction and a buying opportunity: Weber is a highly profitable company that controls 25% of the global grilling market and dominates grill sales at The Home Depot and Lowe’s in the US. In the next decade, the market for outdoor cooking equipment is expected to grow 8% a year and hit $18.5 billion. Recent share price: $6.37.