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FallenAngelsReport.com
AMMInvest.com
December 2006 Volume 3 Issue 18
HERE COME THE DOGS FOR 2007
And the last shall be first... On Wall Street, contrarian investment strategies are successful because investors tend to over react. Mr. Market has a bi-polar personality disorder and suffers from extreme mood fluctuations. As a result, prices for publicly traded securities are rarely in line with the underlying value of the businesses that they represent. One day Mr. Market is flying high, feeling no pain, and the sky has no limits. The next day, despair and pessimism give way to irrational selling at any price.
"DOW UNDERDOGS" vs. "MR. MARKET"
Chuck Carlson of the Dow Theory Forecasts www.dowtheory.com discovered that buying a basket of the Dow's worst performing stocks, what he calls the "Dow Underdogs," and holding them for a year, outperformed the Dow by a wide margin going back to 1930. You can read more about Chuck's "worst to first" strategy at www.dowunderdogs.com
What we have observed over the years is that the Dogs Of The Dow and Dow Underdogs concept has become a self fulfilling prophesy. Every year at this time, investors and brokers begin buying last years Dow losers pushing the prices higher within a few months.
Additionally, management of a Dow component stock stuck in last place is under tremendous pressure to get out of last place. Like baseball managers, rarely does the CEO survive two consecutive years of very poor performance from the shareholders perspective. As a consequence, the management of a last place Dow stock will use every tool at their disposal to increase shareholder value after a lagging year.
OUR FAVORITE DOW DOG FOR 2007
Intel (INTC) at around $20 is down approximately 19% year to date and is this year's worst performing Dow stock. The company is already buying back shares in an effort to enhance shareholder value. We don't believe Intel is headed for the old 2000 price levels above $70, but based on our assessment, we believe the shares have a 50% or greater upside potential. And it has the added benefit of being the Dow Underdog of 2006.
Company Name |
Symbol |
Price* |
Current Price* |
| Bausch & Lomb (contact lens) | BOL | $49.38 | $53.48 |
| Housevalues Inc. (real estate) | SOLD | $5.24 | $5.62 |
| KB Homes (homebuilder) | KBH | $51.54 | $50.14 |
Company Name |
Symbol |
Price Then |
Current Price* |
| Cavco Industries (housing) | CVCO | $34.95 | $34.32 |
| Champion Enterprises (housing) | CHB | $8.94 | $9.32 |
| Fleetwood Enterprises (housing) | FLE | $7.43 | $7.76 |
Company Name |
Symbol |
Price Then |
Current Price* |
| Florida Rock (materials) | FRK | $42.40 | $42.00 |
| Eagle Materials (materials) | EXP | $39.90 | $42.50 |
| USG Corp. (materials) | USG | $51.18 | $53.87 |
| Cemex (cement) | CX | $31.22 | $32.16 |
| Freeport-McMoRan (copper/gold) | FCX | $58.82 | $53.84 |
| BHP Billiton Ltd. (mining) | BHP | $42.31 | $38.77 |
Company Name |
Symbol |
Price Then |
Current Price* |
| Gannet (media) | GCI | $60.29 | $59.70 |
McClatchy (media) |
MNI | $44.31 | $42.26 |
| Alcoa (materials) | AA | $28.30 | $29.24 |
| U.S. Steel (materials) | X | $68.74 | $71.57 |
| Conoco Philips (energy) | COP | 61.19 | $71.05 |
| Halliburton (energy) | HAL | $32.15 | $31.46 |
| Handleman (music) | HDL | $8.04 | $6.70 |
| Tandy Leather Factory (retail) | TLF | $6.97 | $7.70 |
Company Name |
Symbol |
Price Then |
Current Price* |
| Yahoo (internet) | YHOO | $24.42 | $25.55 |
| Google (internet) | GOOG | $427.30 | $455.58 |
| Aegon (insurance) | AEG | $18.62 | $18.68 |
| Prudential (insurance) | PRU | $77.69 | $85.40 |
| Wal-Mart (retail) | WMT | $48.64 | $45.54 |
| Costco (retail) | COST | $53.20 | $52.20 |
| Ford (auto) | F | $8.17 | $7.42 |
| Toyota (auto) | TM | $116.20 | $131.91 |
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Gabriel Wisdom and Michael Moore manage two no-load mutual funds, the FALLEN ANGELS VALUE FUND and the FALLEN ANGELS INCOME FUND.
If you would like more information, please call American Money Management, LLC at (888) 999-1395 today. A prospectus is available at www.amminvest.com.
Please carefully consider each fund’s objectives, risks, charges and expenses before investing. The prospectus contains this and other important information. Please read the prospectus carefully before you invest. To obtain a prospectus, please call American Money Management Funds at (888) 999-1395. Mutual fund investing involves risk, including possible loss of principal. |
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Disclaimer
The opinions expressed are those of Gabriel Wisdom and Michael Moore and do not necessarily reflect the opinions of American Money Management, LLC (AMM), an SEC registered investment advisor who serves as portfolio manager to private accounts as well as to mutual funds. Clients of AMM, Mr. Wisdom, Mr. Moore, employees of AMM, and mutual funds AMM manages may buy or sell investments mentioned without prior notice. This newsletter should not be considered investment advice. The opinions expressed do not constitute a recommendation to buy or sell securities. Investing involves risks, and you should consult your own investment advisor, attorney, or accountant before investing in anything. Current stock quotes are obtained at http://finance.yahoo.com. Prices are as of the close of the market on the previous day of trading.
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