Sometimes we can be our own worst enemies in investing. Humans are hardwired to avoid pain and follow pleasure.
Billionaire investor Warren Buffett said that mostly people need to control the natural urges that get other people into trouble in investing. That goes hand-in-hand with his great investment tip:
Be fearful when others are greedy and greedy when others are fearful
When the market sells off quality companies harshly, the average investor gets out for fear of heavy losses whereas the Foolish investor goes in to pick up good companies at bargain prices.
Here are two beaten down stocks you can potentially benefit from when others are fearful.
BHP Billiton Limited (ASX: BHP), the biggest mining company in Australia, has had to contend with record low iron ore prices. With the mining boom done and dusted, many investors have moved on. I can't say whether today's iron ore prices are at cyclical lows, but BHP is one of the lowest cost producers in the industry.
It is ramping up production while cutting capex costs as much as possible. Also, it will spin off its less profitable business lines into a new listed company. That will allow it to concentrate its investments in its core commodities including iron ore, petroleum and copper. As a long-term investment, contrarian investors could start building up a position in this market weakness. The stock pays a decent 4.7% fully franked yield – higher than most bank term deposit rates.
Travel agency and holiday reservation leader Flight Centre Travel Group Ltd (ASX: FLT) has been sold off around 31% since the beginning of September. It didn't help that the company downgraded its financial year 2015 earnings guidance. Rather than a 5% – 8% increase in earnings, the company expects it may be between a 4% decline and a 4% increase.
Despite operating internationally, Flight Centre's biggest market is still Australia. Consumer sentiment is down and that has resulted in a slowdown in leisure travel spending. The situation may not turn around quickly, but the company is a solid performer with high returns on equity and very low debt. It's usually only in these kinds of tough times that you can buy this company at a discount. It's trading at 12 times earnings, which is near the lower end of its past PE range, and yields a 4.6% yield fully franked.
