Usually the best time to buy stocks is during a market sell-off, when other investors get cold feet and share price premiums fade away. Like a big store sale, a bear market can offer up bargains…for a limited time only.
There are times when individual industries or companies hit the rocks and have their own mini-bear markets, selling off 20%, 30%, even 50%.
You need to figure out if what happened to bring the stock down is:
1) a temporary situation
2) a structural change in the industry, or
3) a cyclical low point for an industry.
If it's #1 or #3, you have a chance to snap up good companies and wait for a rebound. If it's #2 then you should give it a miss.
Crown Resorts Ltd (ASX: CWN) is a good example. The integrated resorts operator was flying high one year ago with its new City of Dreams casino in Macau doing very well.
Fast forward twelve months and the Macau gaming market has slid following the Chinese government's crackdown on corruption and money laundering it suspected was going on there. Mainstream players are still going, but the VIP players with the big money rolls have fallen away quickly. The small earnings growth from the company's Australian casinos in Melbourne and Perth hasn't helped much, either.
In that time, Crown's stock has fallen around 32% to nearly $12. Is it time to pick the stock up? Not just yet. This is a temporary situation, but it hasn't completely played out. We may not be at the bottom just yet. I would hold off a while longer before taking a position.
In the case of Super Retail Group Ltd (ASX: SUL), things are starting to stir in the retail space. The specialty retailer that owns Supercheap Auto and Rebel Sports could benefit indirectly from falling petrol prices and possibly further interest rate cuts. Industry peer Harvey Norman Holdings Limited (ASX: HVN) suddenly popped up in share price earlier and now Super Retail Group is rallying up from its December $7 low.
Though still way down from its previous $14 a share peak, at $8.78 it looks to be in bargain territory. If you wait for the entire retail trade situation to be perfect, the discounts could be long gone by then. The stock pays an attractive 4.56% yield fully franked as well. Take advantage of a potential turnaround in retailing.
