Let’s Go Bottom Fish for Some Cheap Stocks

Bear Market, Dividend Investing

Bear markets in the stock market, like the one we’re in right now, produce severe stock price dislocations.

In other words, stocks get so cheap, you can pick up shares for pennies to realize fantastic gains when the bull market returns.

What you want to do is find profitable companies where those  profits are not reflected in the share prices.

I have a couple for you today…

First, let’s start with an example from the 2008–2009 bear market. No longer a public company, Aircastle Ltd. was an aircraft leasing company I followed in the early 2000s. During the Great Financial Crisis bear market, Aircastle’s share price dropped from the $30s to less than $3.00 in March 2009. Yet Aircastle’s business of jet leasing was less impacted by the financial crisis. The company stayed nicely profitable as the stock market crashed.

The share price steadily recovered from that $3.00 low, until the company was bought out in 2019 for $32.00 per share. That was a ten-times gain in a decade. You didn’t even have to buy shares at the bottom to rack up big gains—any purchases under $10 per share would have produced attractive returns.

The lesson learned is that you can find profitable companies whose shares have been driven to irrationally low prices in a bear market.

Qurate Retail Inc. (QRTEA) is a stock I am currently tracking. Qurate bills itself as “….the largest player in video commerce (‘vCommerce’), which includes video-driven shopping across linear TV, ecommerce sites, digital streaming and social platforms. We combine shopping and entertainment to curate products, experiences, conversations and communities for millions of highly discerning shoppers.”

Here are the company’s brands:

After earning around $2.00 per share in 2019, 2020, and 2021, Qurate ran into supply chain problems this year. Wall Street analysts forecast EPS of $0.78 for 2022 and $0.94 for next year, meaning earnings have fallen by half. But we have every reason to believe the EPS will recover to the $2.00 range as the company’s supply chains normalize.

The share price is another story. The stock traded above $12.00 in May 2021 and has a 52-week high of $10.03. But this year the QRTEA price has dropped by 72%, and the shares now trade for about $2.00 per share. The stock trades for 2.1 times next year’s earnings and just one times historically typical earnings.

QRTEA is a stock that could easily be back up to $10.00 in a few years.

Also intriguing are the Qurate Retail 8% Preferred (QRTEP) shares. QRTEP has a $100 par value, paying a $2.00 per share quarterly dividend. At the current $43.00 share price, these preferreds yield 18%. Also, the preferred shares must be redeemed at par ($100/share) by March 15, 2031. The shares become callable in 2025. As long as Qurate stays out of bankruptcy, the QRTEP shares will return $121 per share in dividends and capital gains by the redemption date.