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Cornelius Chan Blog

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Bargain Bin Blue Chips Update Q2 Week 4

100 views  2012-04-28 16:43   Tagsblue  chip  dividend  bargain  bin 

The DJI closed at 13,228.31 on Friday, up +1.53% from last week's close of 13,029.26. The Dow is up +98.14% from March 6, 2009.

My bargain bin stocks fluctuated inconsequentially this week with the exception of Nokia - down by 11.35% presumably on further deteriorating fundamentals. Of the ten stocks listed in my bargain bin construct, seven are trading below book value. Of these seven, five are very near to half of book: Mitsubishi UFJ Financial, Sharp Corp., Sony Corp., Banco Bilbao Vizcaya Argent. and Societe Generale. Actually Societe Generale shares are at less than half of book value but as I said last week, I am not yet in the habit of buying European financials. In fact I am not yet interested in any financials for that matter. Not until there is a world-wide (at least the Western world) sweeping and significant reform of the derivatives trade, banks and related financials are too risky for me. 

From what I know, investing in banks is akin to walking into a minefield - precisely because of hidden derivatives exposure.  Would you walk into a minefield without a minesweeper? No. Would you walk into a minefield with a minesweeper of unknown quality? Probably not. Not until the minefield is cleared by competent authorities utilizing proven systemic crisis avoidance regulation a.k.a. Glass-Steagall will I be comfortable with banks as a good long-term investment. And they say tech stocks are risky! LOL

As far as my underwater shares of Nokia, I find it interesting to watch my in-the-red holdings fall in price week by week. As Uncle Warren says "...in the short run the market is a voting machine; in the long run itt is a weighing machine." Based on everything I see, hear and read about Nokia, I conclude there exists the high likelihood that it will fall in share price to half of book value before beginning its ascent to profitability; I also believe the re-ascent of the Finnish handset maker will be a slow and drawn-out one.

I am still bullish on Nokia, but only at the right price. As they say - contrary opinion is usually ahead of time. And so I bought significant amounts of shares at $4.96. Now shares are less than a dollar cheaper but I am not tempted to greedily buy more as $2.50 is the maximum I will now pay for this justifiably beaten down blue chip stock. As I have said before, even if it takes a decade for Nokia to develop a trend of profitability, I collect Nokia dividends while I look around the market for other cheap and good stocks. Further to all this, sometime during this theoretical decade, it is likely there will be a steep and prolonged market downturn. It is at that point that a weakly recovering Nokia could again get sold off all the way to Gannon's entry price of $1.50. This would also be a dream come true for me as it would then be possible to achieve a ten-bagger in shares of this Northern European tech co.

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