As you kids have probably figured out by now, I’m a big fan of contrarian stocks nobody likes.
Other value investors will try to tell you the best opportunities are in stocks that are truly great businesses. That way you can buy and hold for a very long time, collecting some sweet profits.
But the world isn’t quite that simple. There are a lot of overpriced stocks today people think are great businesses. When stocks go down, they’ll get hit and get hit hard. And besides, there are a lot of business that look good during boom times.
It’s also hard to envision the average stock trading at 20x earnings doubling over any reasonable period of time. This would either mean valuations would have to get much higher (which has a snowball’s chance in hell of happening) or earnings would have to double. I don’t like either of those odds.
There aren’t many true value stocks available today, but I’ve found one that could very well be the cheapest stock I’ve ever seen.
- It trades at less than 3x free cash flow
- It trades at just 7x earnings
- The company is also cheap on a book value and price-to-sales perspective
- And it’s down 70% from its recent peak
I have confidence this stock could double. Or even more. If management figures out the turnaround, I think a triple is even possible. My target price is 2.5 times higher than Thursday’s close.
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