In 2015, a stock broker who had been in the business for over 30 years told me that the best way to beat the market is by buying good, high-quality companies whose stocks had pulled back recently.
Although I don’t always follow that advice, it does seem like a logical strategy that is often successful. Investors looking to embrace such a strategy should buy General Motors Company (NYSE:GM) stock, Albemarle Corporation (NYSE:ALB) stock and Palo Alto Networks Inc (NASDAQ:PANW) stock.
All three names have retreated recently but have very strong businesses and are very well positioned to rebound strongly over the medium-to-long-term.
Stocks to Buy on Weakness: General Motors (GM)
GM stock has been beaten down recently, falling around 14% over the past six months. The trade dispute between the U.S. and China, along with worries about the future of NAFTA, have probably been key catalysts behind the decline. However as I pointed out in a previous column, “President Trump has always been a deal maker, and many of his actions as president … have been efforts to reach deals that improve the country’s situation, as he sees it,” making it likely that he would seek to make a trade deal with China.
Moreover, as I wrote in a subsequent column, China’s president has indicated that the country is prepared to reduce the barriers to imports of vehicles to his country, where GM sold about 4 million vehicles last year. Furthermore, as I pointed out, “Chinese law currently requires 50% of all profits made by foreign companies from vehicles built in the country to be given to Chinese automakers,” and “any relaxation of that onerous rule would greatly benefit GM and GM stock.” And a NAFTA deal now may be right around the corner.
Meanwhile, GM is a leader in the autonomous car race, as it’s already testing self-driving cars and intends to launch such vehicles by next year. The automobiles, which will be deployed as “ride sharing vehicles,” could be much more profitable for GM than its current vehicles, since some middlemen, like banks and dealers, will be cut out of the picture.
Finally, GM stock is trading at a dirt cheap forward price to earnings ratio of just over 6.
Stocks to Buy on Weakness: Albemarle (ALB)
Source: fdecomite via Flickr (Modified)
Lithium miner Albermarle, which mines lithium used to develop electric car batteries, is down about 30% over the last six months due to worries about increases in the supply of lithium. But demand for lithium is poised to explode over the longer term as the governments of many areas, including China, the U.K., France and California are setting electric car quotas or even banning the sale of non-electric vehicles starting 12-20 years from now. The entire EU is also considering implementing such a plan.
Additionally, as lithium prices drop slightly in the near-term, many smaller producers are likely to go out of business, removing some supply pressure over the longer term.
And Citi recently upgraded Albemarle stock to “buy” from “neutral,” saying that lithium prices probably won’t collapse and stating that the company is one of the few producers that can provide reliable, large quantities of top-quality” lithium carbonate/hydroxide to battery-makers,” The Fly reported.
Stocks to Buy on Weakness: Palo Alto (PANW)
Over the last 10 days, Palo Alto stock has sunk about 3%. One reason for the pessimism may be the market’s displeasure with two sizable acquisitions that the company made over the last month.
And Morgan Stanley recently stated that Palo Alto is “‘well-positioned’” to increase its already leading market position in network security through cloud security services,” Benzinga noted, adding that Morgan Stanley expects spending on cloud security to surge going forward. The firm raised its price target on the shares to $224 from $205.
As of this writing, Larry Ramer owned shares of Albemarle stock.