How can investors cash in on the next big stock before it flourishes?
Many thought they were headed for paradise when they piled into BlackBerryBBRY
, which was on the rise late last year.
Investors' hopes and dreams began to vanish the moment BB10 was released. Consumers greeted the product with very little interest
. The stock has been falling ever since and is down more than 47 percent year-to-date.
Instead of banking on the hope that a product will perform well at retail and turn a company around, Dutch investor Jeroen Bos, the Investment Director at Church House Investment Management, has another strategy. He wrote a new book, Deep Value Investing
, that was published by Harriman House this month.
"Every chapter in the book deals with a particular case of investments that I've had in a fund," Bos told Benzinga. "I [took] them from the moment that I found the company when it was trading at a new low."
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Bos is particularly interested in looking at information that is publicly available.
"I show people…what to look for in the balance sheet, and what management statements were [notable] at the time," he explained. "That is very important."
Bos said that it is very easy to identify a cheap stock, but cautioned against investing in a firm if its managers aren't totally optimistic.
"To find a stock that…has a very negative outlook where management is still very cautious, then it is difficult for these stocks to turn around," said Bos.
"For management to start saying, 'We are leveling out and we're starting to see increased orders, or inquiries, or whatever,' that is the kind of thing you want to look for."
At that time, Bos said that investors should expect the stock to end its decline, paving the way for a turnaround.
"Once these stocks start turning around, they tend to not go up by 100 or 150 percent -- they will take off [higher]," said Bos. "Three hundred percent is certainly not unusual. It really is the change in perception from thinking that these companies are going to go out of business to the moment the market realizes that it is not going to happen. That is really when the stocks start to fly."
In the United States, NetflixNFLX
is a great example of a stock that fell from grace and rebounded beautifully. Year-to-date, the streaming video giant is up more than 271 percent.
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Bos is currently keeping a close eye French ConnectionFCOGF
, a UK fashion retailer that has "gone through a rather rocky time."
"I think [it] looks cheap, but it has appreciated in share price over the last month," said Bos.
Lawsuits Are Cool
"I love to read about companies that are hit by something -- a lawsuit or whatever," Bos added. "I look at companies that have a big setback in the share price, and I just see what I would pay for it on a liquidation valuation compared to what the share price is. And if I think it is an interesting company, I'll make a note of it and just watch them.
"Not all of them, but more than half of them will trade down to levels where they start to become value or liquidation targets."
Bos said that he may have missed out on some good trades by investing so conservatively. At the same time, he is confident that he has also avoided some bad trades that he may have otherwise encountered.
Disclosure: At the time of this writing, Louis Bedigian had no position in the equities mentioned in this report.Louis Bedigian is the Senior Tech Analyst and Features Writer of Benzinga. You can reach him at louis(at)benzingapro(dot)com. Follow him @LouisBedigianBZ