Monday, June 04, 2012

Resisting the Urge to Buy Beaten Down Stocks

Usually, by this time of a market correction, I am buying stocks which have had significant corrections.  For the past month, I've been resisting my normal practice of buying beaten down stocks.   The main reason is because I started using an approach which I call a long short portfolio, which requires the purchase of stocks of strong companies combined with shorting stocks of week companies.  The portfolio doesn't allow for purchasing beaten down stocks.

However, I am making a list of stocks to consider when I do start buying beaten down stocks.   So far my list include CLF, RGC, PBI, STX, and RRD.  These stocks are paying dividends in the range of 4-11%, which by itself makes these stocks attractive in the current low interest rate environment.  I still haven't purchased any of these stocks. 

Should the market decline another 5-10%, I will start purchasing small positions in some beaten stocks since these types of stocks tend to do well in sharp upward market rallies.

Disclosure:  At time of publication,  I have no positions in CLF, RGC, PBI, STX and RRD.
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