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Step 1
One of the first places you can look for value in a bear market is with blue chip stocks that have fallen out of favor--but it is critical to be able to tell the difference between a good company that is temporarily out of favor and a real loser. Companies that can adapt when bad weather hits and take responsibility for mistakes will usually bounce back. Companies with sound fundamentals and compentent management are usually good bets when the chips are down.
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Step 2
Companies can get dragged down with the sector of the economy that they are in, no matter what they do. For example, the stock of a financial company in a bear market is a prime candidate for value investors, especially if the company's underlying business is basically sound. Companies that have temporarily run afoul of regulators are also probably trading below their market value, provided that the problem is relatively correctable.
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Step 3
Simple, plain old-fashioned small cap stocks that have yet to be discovered are also good bear market remedies. Companies that have new ideas or products for which there may be widespread demand in the future always warrant consideration and research.
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Step 4
Plain growth stocks that are reasonably priced can also be good long-term buys. Even if they do not trade below their market value, they can provide substantial gains over time if their growth continues. Blue chip companies with strong earnings and sales are possible fits for this mold.
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Step 5
"Misfit" companies that lack traditional financial characteristics of successful stocks are also potential winners. This type of company can be the hardest to spot, because it will seem like an odd company at first glance. But companies that are being run differently than other like companies, may be run differently for a good reason--and therefore may warrant your attention.
Comments
writetruth said
on 10/8/2008 Very informative and well written! 5 Stars ~!~
Ballzy said
on 9/23/2008 Great article!