The US stock markets are now more expensive than at any other time in history, including the 1929 top that preceded The Great Depression as well as the Subprime market top. In order to protect and grow your wealth in this environment, you must identify companies that are trading cheap (buy low) and have a catalyst to propel them higher (sell high), but also provide a large margin of safety.
These kinds of companies have been advocated by the best investors in the world, including Benjamin Graham, Peter Lynch, and Warren Buffett.
Champagne Stocks seeks to identify US based companies (primarily) trading at a deep discount to their true intrinsic value, and that have fallen out of favor or are experiencing a cyclical downturn, but that, according to our analysis, are on the cusp of reversing trend and increasing in value.
Often the share price of these kinds of companies will be trading between $2 and $10, like the very first Champagne Stocks pick Diana Shipping (DSX), which was recommended at $2.74 per share and traded as high as $6.20, a gain in the share price of 126% in only 6 months.
Here is what we look for in each company:
- Balance Sheet Strength – Assets are plentiful and significantly outweigh liabilities, creating a situation where the share price is trading for pennies on the dollar.
- Liquidity Strength – Strong cash balances with earnings before interest and taxes that far exceed the annual interest expense and have ample liquidity to survive the selling climax and rebound to new highs.
- Revenue Strength – Must have stable long term revenues and earnings and must only be experiencing short term weakness.
- Turnaround Catalysts – Situations that show the company is addressing whatever issues may be the culprit for the prior sell-off and weakness and have long term catalysts that will have a positive impact on the share price.
- Thriving Industry – The company must be operating in a thriving industry and not one that is dying. For example, in 2012 Kodak filed for bankruptcy because it was too slow in adapting to digital photography from the dying print photography. We don’t touch those kinds of situations.
Retail Value: $1,995 per year