Patience is a Virtue
When investing, you sometimes need patience. Especially when you invest in companies that are out of favor with wall street. However, it’s usually when wall street hates a stock, that it gets cheap. As an investor, it’s our job to research these stocks and determine which ones deserve to be down and which ones are simply a victim of an overreaction or loss of patience.
Two of my last investments fall in this category. Ebay (EBAY) and Microsoft (MSFT) both have been out-of-favor with wall street. Ebay has been down for what I believe are some misunderstandings by the media regarding their business, which if you researched you would have found they are stronger than wall street gave them credit for. There was also an over-reaction in the believe that Google Checkout was going to destroy Ebay’s Paypal business.
Microsoft was simply a patience issue. Wall street was tired of waiting for new operating system and office software to come out. Wall street reacted as though they were never going to be released and so the stock was sold off very heavily. This posed a great opportunity for investors like myself to pick up some shares really cheap. However, for a while the shares did nothing, but the last 2-3 weeks have been great for both Microsoft and Ebay.
A couple of my current situations that I believe to be similar are Labor Ready (LRW) and Sandisk (SNDK). They are both currently out-of-favor with wall street as their stocks are much cheaper than most stocks I watch. I imagine the Labor Ready is down due to fears that the recent minimum wage increase will hurt them and Sandisk is down to a current oversupply of chips, which they will most likely need to mark down to sell. I don’t think either of these problems are going to affect the companies in the long term. Both are strong and stable businesses. Labor Ready deals in temporary manual labor and they have minimal competition and they are very profitable. Labor Ready is expected to get a lot of work through post-Katrina construction. I think the wage increase concerns are overblown.
Sandisk will simply discount their current stock and make more money on the forthcoming chip production. They continue to stay ahead of their competitors with new innovations and they have a ton of cash and no debt. With the increasing popularity of handheld electronic devices such as digital cameras, cell phones with storage, mp3 players, handheld video players there is going to be increased demand for small storage cards, which they’ve got. Sandisk’s cards are regarded as the most innovative and reliable. I would not bet against them.
Buying shares in either of these companies and waiting a few months or a couple years should pay off very well.
The bottom line is you must do your own research, don’t just take what the media and/or wall street says and you must have patience if you are going to bet against wall street.
Full Disclosure: I own shares in both Ebay and Microsoft. Sandisk and Labor Ready are potential new investments that I may or may not make in the near future.