Newsletter Subject

Smart Money Monday - What Keeps Stocks from Falling to Zero?

From

mauldineconomics.com

Email Address

subscribers@mauldineconomics.com

Sent On

Mon, Jan 31, 2022 03:14 PM

Email Preheader Text

Three stocks set to rebound fast  Jan 31, 2022 What Keeps Stocks from Falling to Zero? There’

Three stocks set to rebound fast [Read this article on our website.]( [Smart Money Monday]  Jan 31, 2022 What Keeps Stocks from Falling to Zero? There’s a lot of carnage out there. The S&P 500 has sunk 10% since the start of the year. And the Russell 2000, our hunting ground for small-cap stocks, has plunged 13%. Investors are understandably worried. The market is throwing the baby out with the bathwater. And it’s hurting everyone in the process. Still, I’m not the least bit worried. For bottoms-up stock pickers like us, market-wide selloffs are an opportunity to buy quality businesses—strong companies with solid fundamentals run by smart management—at cheap prices. Because those stocks will eventually turn around and march higher. How do I know? - A lot of it comes back to something called a valuation floor… When a stock is super cheap relative to the profits and cash flow of the underlying business, someone is going to buy it. That someone is often an active fund manager who can quickly pour many millions into a stock. See, despite the rise of passive investing, active fund managers still control over $5 trillion in US equity funds. These managers pick stocks based on old-fashioned fundamentals. Specifically, whether a stock is cheap relative to profits and cash flow. When they spot one of these stocks, they buy it for their clients. That helps support the stock’s valuation floor—and eventually helps push the stock price back up. - If a quality company becomes super cheap and stays there, it also becomes an acquisition target. A competitor or large shareholder might try to buy it outright. This also supports the stock’s valuation floor, as we’re seeing in real time with casino operator Bally’s (BALY). Bally’s has tumbled 35% in the past year. Shares reached a 52-week low of $27.11 earlier this month. The company says it’s capable of generating $5 per share in free cash flow. On $27, that’s under 6 times free cash flow, which is far too cheap. As one of my successful investing buddies likes to say, a business with a pulse should trade for at least 10 times free cash flow. So now one of Bally’s largest shareholders, the hedge fund Standard General, wants to buy the whole company. Bally’s shares have popped 24% since Standard General offered to acquire Bally’s for $38 per share last Tuesday. - Private equity also supports the valuation floors of quality companies… Again, this is playing out in real time with Telecom Italia, Italy’s largest phone company. The stock has fallen 40% over the past five years, slipping under $4 last November. At that price, it was too cheap for a big player to pass up. So, US private equity firm KKR pounced. In November, KKR offered to buy Telecom Italia for $12 billion. The deal is still pending. But shares immediately jumped 40% on the offer alone. KKR has over $100 billion ready to deploy on deals like this. Altogether, US private firms have $714 billion on hand according to data provider Preqin. All this money, and the potential it creates for private equity to scoop up quality businesses at cheap valuations, keeps those stocks from sinking below a certain point. - Does this mean you should buy stocks right now? That depends. We’re stock pickers here at Smart Money Monday . We buy individual companies—not the broader market. And we’re looking at opportunities with time horizons of a year or longer. So, for us, there are plenty of bargains worth buying right now. Specifically, we’re looking for quality business trading at or near their valuation floors. That means stocks like [AT&T (T)](. It has a 6% dividend yield. And the spinoff/merger of its Warner Media assets with Discovery (DISCA) should serve as a positive catalyst for the stock price. Or stocks like [Cleveland-Cliffs (CLF)](, which trades at a single-digit earnings multiple and generates gobs of free cash flow. Or Franchise Group (FRG), which still trades at a low-teens earnings multiple, even after [a nice runup since I first recommended it](. All three of these stocks are still buys at current prices. Monday Mailbag Edward wrote in: I wanted to ask Thompson why Cleveland-Cliffs is falling like a stone… And why is Deutsche Bank falling when interest rates are rising? Great questions. Cleveland-Cliffs (CLF) has pulled back for two reasons. First, the selloff in the broader market, which we’ve already covered today. Second, the price of hot-rolled coil steel (HRC), which Cleveland-Cliffs produces, has been on a wild ride. It surged from $580 in March 2020 to a high of nearly $2,000 in August 2021. Today, it’s at $1,200. Cleveland-Cliffs has already locked in HRC pricing for many of its customers for 2022. So, despite the recent pullback, it expects to sell HRC at a higher average price this year than it did last year. That said, Cleveland-Cliffs is not a bet on HRC prices. [It’s a bet on CEO Lourenco Goncalves.]( He’s made multiple smart acquisitions and paid down the company’s debt. I still like the stock here. As for [Deutsche Bank (DB)](, the company has outlined a plan to return over $5 billion to shareholders. That’s over 20% of the current market cap. It’s still cheap, and I still like it here. Please send me your questions about the market selloff or any of the companies we’ve covered today. You can reach me at subscribers@mauldineconomics.com. Thanks for reading, [Thompson Clark] —Thompson Clark Editor, Smart Money Monday [Thompson Clark]Thompson Clark is a small-cap expert and value-focused investor with nearly a decade of experience in financial publishing. Thompson graduated from the Goizueta Business School at Emory University in 2010 with a focus in finance and accounting. He lives in North Carolina. He is the editor of Mauldin Economics’ free research service, [Smart Money Monday]( . Don't let friends miss this timely insight— share it with your network now. [Facebook]( [Twitter]( [Email]( Share Your Thoughts on This Article [Post a Comment]( [Read important disclosures here.]( YOUR USE OF THESE MATERIALS IS SUBJECT TO THE TERMS OF THESE DISCLOSURES.  This email was sent as part of your subscription to Smart Money Monday . [To update your email preferences click here.]( Mauldin Economics, LLC | [PO Box 192495 | Dallas, TX 75219](#) Copyright © 2022 Mauldin Economics. All Rights Reserved.

Marketing emails from mauldineconomics.com

View More
Sent On

02/12/2024

Sent On

08/11/2024

Sent On

01/10/2024

Sent On

27/09/2024

Sent On

20/09/2024

Sent On

13/09/2024

Email Content Statistics

Subscribe Now

Subject Line Length

Data shows that subject lines with 6 to 10 words generated 21 percent higher open rate.

Subscribe Now

Average in this category

Subscribe Now

Number of Words

The more words in the content, the more time the user will need to spend reading. Get straight to the point with catchy short phrases and interesting photos and graphics.

Subscribe Now

Average in this category

Subscribe Now

Number of Images

More images or large images might cause the email to load slower. Aim for a balance of words and images.

Subscribe Now

Average in this category

Subscribe Now

Time to Read

Longer reading time requires more attention and patience from users. Aim for short phrases and catchy keywords.

Subscribe Now

Average in this category

Subscribe Now

Predicted open rate

Subscribe Now

Spam Score

Spam score is determined by a large number of checks performed on the content of the email. For the best delivery results, it is advised to lower your spam score as much as possible.

Subscribe Now

Flesch reading score

Flesch reading score measures how complex a text is. The lower the score, the more difficult the text is to read. The Flesch readability score uses the average length of your sentences (measured by the number of words) and the average number of syllables per word in an equation to calculate the reading ease. Text with a very high Flesch reading ease score (about 100) is straightforward and easy to read, with short sentences and no words of more than two syllables. Usually, a reading ease score of 60-70 is considered acceptable/normal for web copy.

Subscribe Now

Technologies

What powers this email? Every email we receive is parsed to determine the sending ESP and any additional email technologies used.

Subscribe Now

Email Size (not include images)

Font Used

No. Font Name
Subscribe Now

Copyright © 2019–2025 SimilarMail.