Bad is Good

Today, I’m sharing an interview with Nancy Zambell, editor of Buried Treasures Under $10. She uses her years of knowledge and experience to select the very best investments for investors like you who want to rediscover the joy of seeing their $3, $4 or $10 stock double – or more. Zambell’s reputation reaches far and wide. She has often been quoted in the The Wall Street Journal, Forbes Online, Money Show Digest, Medical Economics, Investors Business Daily, USA Today and Business Week, as well as numerous local and regional publications.
Nancy, Were you able to find any pockets of strength in 2008?
Personally, I was not actively buying stocks for most of last year, and I also did not sell any of the shares I was holding in my personal portfolio, as they are either: 1) fairly conservative or 2) in energy and emerging markets-two areas I believe will fully rebound as the market recovers.
In my Buried Treasures Under $10 newsletter service, we are seeing big gains in stocks benefitting from President Obama’s stimulus package (like renewable energy) and companies that are growing because of the recession (such at-home entertainment companies and generic brand labels).
Once some sense of normalcy resumes in the financial world, what sector(s) do you think will lead us out of the bear and why?

Actually, I think I would answer this question very similarly to the first one. Already we are seeing fabulous growth in the alternative energy area. Renewable energy received tax incentives of $15 billion in the recent stimulus bill, which is sure to boost a wide range of environmentally friendly and/or alternative energy players like solar, wind, nuclear and geothermal energy producers, companies that make their money from recycling, hybrid vehicles, and more. The "green" movement has had its ups and downs, but spending will soar this year and there are some attractive companies out there right now that stand to profit.

Also doing extremely well are select stocks benefiting from a return to basics on the part of the consumer. This trend should last well into the next bull market. With jobless numbers so high and foreclosures at record levels, people have changed their spending habits. Those who wouldn’t get caught dead shopping in a dollar store or Wal-Mart have changed their tunes, and this behavior can be seen in a number of industries. As I mentioned, private label items are growing faster than brand names; at-home entertainment options like video games, software, and DVDs are showing strength; do-it-yourself discount travel services and web sites are growing; and so on.

Name 3 stocks you would buy today and why? 
 In our portfolio, we currently have buy ratings on Hi-Tech Pharmacal (Nasdaq:HITK), up to $7.50 per share, for a target of $15. This company is flush with cash, profiting during a recession, and is undiscovered by most of Wall Street.

GigaMedia (Nasdaq:GIGM), the Chinese online gaming company, is going gangbusters, also profiting during a recession, receiving lots of new attention from institutional investors, and is the subject of buyout rumors. The shares are a bit above our buy limit (which is $6.25), so I would buy on any temporary weakness, for a target of $11.50.
Additionally, Raser Technologies (NYSE:RZ) produces geothermal energy, and also manufactures motors, drives and controllers used in plug-in hybrid vehicles. Its shares are benefiting from Obama’s focus on stimulating the renewable energy industry. Also currently a bit above my buy limit of $3.50, the shares can be purchased on temporary weakness, for a target of $6.00. 
If you were face-to-face with President Obama, what unique perspective could you give him regarding the markets and challenges facing investors?  I would strongly urge him not to throw the baby out with the bath water, and refrain from over-regulating the markets. I agree that the excesses of the credit markets need to be prevented from reoccurring, but rigid regulation by inexperienced regulators also won’t work in the long run. Secondly, I would implore him not to raise the capital gains tax and estate taxes. Overtaxation for people who are savers and investors is not a workable solution and will lead to a result-less savings and investing-which is opposite to what he intends. I give him credit for doing a pretty good job in instilling confidence into the markets, but believe he absolutely must make investors feel he is on their side-as well as that of the consumer. The only way the U.S. will retake our leadership position around the globe is by returning to a saving and investing economy, not as a net borrower, either federally, or individually.
 What areas of the market do you perceive as most safe today? 
It’s still a volatile market out there, so I think playing it safe is smart. In my newsletter service, we’re being conservative with our buy limits, stop losses and initial targets. I actually think the sectors we’ve talked about are not only growing but also among the safest because of how they are positioned. Sectors that encompass the change in consumer focus, ‘back to basics’, such as home entertainment and convenience foods that can easily be prepared at home, are still attractive. As well, alternative energy and healthcare are long-term favorites, as both sectors will be continue to be game-changers over the next few years.
 What do you say to people who are tempted to buy technology, even financial stocks at these low, low prices?
 I’m not yet ready to dive back into financials, but will be actively looking at smaller, regional banks, once I see that we are making real progress in a return to credit normalcy. I would continue to stay away from big banks and brokerage firms. 
 As for technology, I am actively researching and analyzing a number of tech companies right now. The sectors are widespread, from semiconductors, to software, to networking companies, and I believe they will begin their recovery fairly soon. Companies have been slashing costs, but as the economy shows signs of recovery, they will have to increase their technology budgets in order to be ready to take advantage of the next cycle. I want to be in place before that happens.
 What fundamental strategy do you follow for buying portfolio positions? 
 In short, strong growth in earnings and sales, positive cash flow, low debt, low or reasonable institutional ownership, a keen focus on the company’s goals, and proven ability to achieve them. If that company operates in a growing industry and is run by a competent management team, then you probably have a winner. As a final piece of the puzzle, I like to pay a personal visit to companies to see things for myself. This usually confirms what I already expect to be the case, but sometimes I’ve uncovered things that made me run the opposite direction.
 What investment advice would you give to someone with a 5-year horizon? 
 I understand that investors want to hurry up and make their money back, but as you know, that strategy is fraught with complications and great risk. We are still in a very volatile market, which requires thoughtful planning. That means spending a lot of time thinking about the sectors that will benefit the most during the next 6 months to a year, honing in on the best-run and fundamentally-strongest of those companies, being incredibly disciplined about not chasing the stocks, setting a reasonable price target, putting stop losses in place and again, exercising great discipline in selling the shares at that time. Lastly, constant monitoring is absolutely crucial in this market, diversification is important, and relegating only a small portion of your portfolio to the most speculative issues is essential.  
 It’s time to start making money in the stock market again! The secret is to look for what I call buried treasure stocks.   Please accept a free copy of X Marks the Spot: 3 Buried Treasure Stocks That Will Help You Rebuild Your Wealth by going here now.