Stock and ETF Doublers for 2009
In October of 2008, very near what I believed was the bottom of the market crash, it became apparent to me that the market was likely to be setting itself up for a snap-back crash UP. Let me explain why I believed that and why I wrote these words, at that time, in my weekly newsletter to my clients...
Only 5 other times in history, had the market plummeted so severely in a consolidation period. Each and every time, the rebound was very nearly as precipitous and significant as the preceding crash.
It is important to note the following:
- There have been 4 consolidation periods since January 1, 1900. The average duration of each consolidation period has been 12 to 15 years. This is assuming that the most recent consolidation period began in January 2000. A consolidation period is defined as multi-year time where the market trades within a reasonably well defined upper and lower range.
- Only 4 other times within those 3 previous consolidation periods (1907, 1915, 1942 and 1975) did the market close down below its then lower level of its consolidation range.
- Each and every time this occurred, a significant market rebound ensued immediately thereafter; "Immediate" being defined as within a few months or less. From the perspective of decades of time, all recoveries were "V-Shaped"; not "U-Shaped"
- The US is, indeed, in a recession but from a GDP perspective, there has yet to be a quarter of negative GDP growth. Investors will most likely see a negative GDP for this current quarter and the next. Economists say a recession is defined by 2 consecutive quarters of negative GDP growth. However, the National Bureau of Economic Research (NBER) earlier this week declared that the U.S. has been in a recession since December of 2007. They, obviously, have a different definition of a recession.
- Since the end of World War II (according to NBER), there have been 10 recessions (not including this one). The average recession lasted for 10.4 months. The longest recession (11/73 - 3/75 and 7/81 - 11/82) was 16 months. So... assuming the NBER is right about when this current recession started, and it lasts as long as the longest recession since World War II, this recession would end in April of 2009. But, why not assume this is the worst recession in modern history and that this recession lasts 25% longer. That would put the end of recession on or about August or September of 2009. This fits nicely into my previous comments, made in this column, that I believe we will see the market begin its rebound sooner than later, since the market generally (but not always) leads the economy by six to eight months. That would put a market recovery beginning in January or February of 2009.
- According to many published reports, there are between 1 billion and 2 billion people in emerging markets (e.g., China, India, South America, Eastern Europe, etc.) that desperately want to move out of poverty and into the modern era of middle-class, where food is plentiful and modern conveniences are common-place. Never before in history have so many people been on the verge of moving from one socio-economic class to another. Commensurate with that tsunami-like event, markets will likely see a surge in economic growth the likes of which have never occurred in history. This is an event that will impact the lives of the entire globe for generations.
- And, lastly... Over the last few months and for the next few months, global governments are pouring more than $3 trillion dollars (some say this number is closer to $7 trillion) into global economies. At this writing, the vast majority of that money has gone nowhere except into the coffers of big financial institutions. These institutions are still afraid to loan money, but money is sitting there... just waiting for the right time to provide the requisite monetary fuel for what could be the bull market of a lifetime. Right now, world-wide, product producing companies are suffering in this recession. Millions of people are losing their jobs because companies are not growing... and can't get the financing to grow... not yet, any way. Soon, perhaps well before the end of 2009, the spigots will be opened and these trillions of dollars will start flowing into the global economy. A boom will likely occur of enormous proportion. This won't start this year and may not start until the end of next year. It might even take as long as another 2 years to actually get into full swing. But, I don't see any way that this won't happen. Never in history has so much money been poured into financial institutions. That money does these companies no good unless it is working for them. Today, it is NOT working for them. But, that won't last much longer. They are in the business to provide money to growth companies and their business model has not changed... it is just on hold.
So... what conclusions can one draw from the above observations, facts and opinions?
I suspect this means that huge consumer demand will be unleashed on the global economies within the next 2 years. Companies will be able to tap into incredibly large reservoirs of growth capital. The stock market will begin to see this is a reality within the next several months and will start snapping up the best companies that can be the first to capitalize on this next new global bull market economy. When this happens, the move from 8,000 to 10,000 or 11,000 will not be slow.
To break into a multi-decade bull market, which I believe will happen; the Dow has to break out well above the 14,000 level. To get from the 8,000 level to the 14,000 level will not happen over night. It could happen, though within the next 2 to 3 years. Many great stocks are extremely cheap right now. And, if the market moves back to 10,000 or 11,000 (just half way back to the 14,000 level), these stocks or ETFs will most likely double or triple in value quickly. Owning stocks with the least resistance to doubling in the upcoming bull market is very important. Of course, history does not always repeat itself. The risk is still there that the lows in October were just a pause before an even more significant run to the downside. However, such an event has never before occurred; not in the last 108 years. So, it seems reasonable that it will not happen this time, either.
To find those equities that had the least resistance to doubling in a market recovery, I performed an in-depth analysis of all the stocks and ETFs in my database (about 6,000) to find those stocks that fit my 'Doubler' profile. This analysis precluded those stocks that had not suffered substantial and devastating losses in market share price. It also seemed reasonable to look for stocks with very strong fundamentals before the crash and still reasonably strong at the bottom. I also compared the technical charts of these equities that seemed to exhibit unreasonably negative trends.
My initial analysis uncovered more than 400 such stocks and ETFs. My goal was to reduce this list to not more than 100 stocks and 30 ETFs.
To do this, I looked for those equities with the most rapid fall-off in price in the preceding 4 to 6 months and kept those that exhibited the worst technical chart structure. The assumption was that these would be the equities in the most over-sold condition.
Next, I sorted the list by Industry and kept only the top 4 candidates from each Industry. Some Industries had only one candidate; others had more than a dozen. Then, I sorted the list by my “Doubler” column. The results in this column were derived by dividing the 52-week high by the then current price. This provided the number of times the equity would have to double to get back to its 52-week high; the higher this number, the better.
Finally, I rated the technicals for each equity from 1 to 10. This was very subjective on my part, but I wanted a quantiww a process of elimination, I narrowed the list to those that I wanted to seriously consider buying for my own portfolios and my clients’. See final list, below.
I did not immediately release this list to the public, as I first wanted my clients and subscribers adequately invested in these Doublers. Otherwise, I was concerned that the share price would move up and away from us before we had the opportunity to own these equities.
There is no guarantee, of course, that this strategy or these equities will outperform, but my thinking is that if the market does, indeed rebound, these equities will significantly outperform.
I believe, with these equities, we have the opportunity to make more money in the next several months in this market than we have had in the past several years.
I hope these doublers do well for you. Please remember that I am not recommending that you buy any of these equities. This is informational only. Always do your own research and seek advice from your personal investment advisor before buying or selling any securities. Mike
The 2009 Stock Doublers List
The 2009 ETF Doublers List
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