Bottom Picking Strategy

This is a cut and paste out of Globe:

Today's Mrarkets

Feeling tough? Try Phoenix investing

Thursday, March 12, 2009

Some investors are pondering whether we have finally passed a stock market bottom, giving them an ideal point at which to benefit from a rising stock market. Others, however, are pondering something far more interesting and, potentially, rewarding: Is it time to buy Phoenix stocks?

Phoenix stocks are near-dead investments that shake off death during an economic recovery, rewarding investors with startling gains. According to Cam Hui, who writes the Humble Student of the Markets blog, some Phoenix stocks of the past include Chrysler, which zoomed from $2 (U.S.) to more than $30 in the early 1980s, and Magna International Inc., which soared from less than $2 (Canadian) to more than $80 in the early 1990s.

You find these stocks by running a screen: The candidates have to be low-priced (ranging between $1 and $5), they have to be beaten-up (down by 80 per cent or more in a year), they have to have market capitalizations of $100-million or more (suggesting they were once going concerns), and they have to show signs of insider buying.

When he ran this screen in mid-February, he came up with just 30 names. That total rose to 58 earlier this week. Many of these are truly frightening places to put money: They include Citigroup Inc., Bank of America Corp., Liz Claiborne Inc., Gannett Co. Inc., Great Atlantic [amp]amp; Pacific Tea Co., MGM Mirage, and Saks Inc.

“I don't believe that it's time to buy into a Phoenix strategy yet, but the number and the composition the Phoenix list bears watching,” Mr. Hui said.


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