The Fallen Angels Report

Every two weeks, subscribers receive the Fallen Angels Report designed to help you find potential bargains that are cheap and timely. The Report is updated and sent out bi-weekly. The editors define Fallen Angels as quality businesses whose value is not currently recognized in the company's stock price. While Fallen Angels stocks that we profile are often down significantly in price, this is not a pre-requisite to be considered a Fallen Angel by the editors. Some stocks may be selling close to all time highs and are still significantly underappreciated in the marketplace.

Why Fallen Angels?

1. Focus on Value: At the core of the Fallen Angels approach is a focus on finding businesses selling at discounts to their intrinsic value. We believe that while the "markets" in the aggregate operate more or less efficiently, there are always pockets of inefficiency that create opportunities to buy stocks at bargain prices. These include recoverable calamities, market panics, and shifts in the business and economic cycle.

2. Focus on Quality: Clearly, not all stocks that are down in price are fallen angels. In fact in most cases there is a very good reason behind a company's declining stock price. Our focus is to find High Quality businesses that are currently being mispriced by the market.

3. Focus on Timing: Some Fallen Angels may remain fallen for months or even years. In order to avoid the dead money problem, it is important to wait for a catalyst or sign of a pricing turnaround before investing in a Fallen Angel stock.

The Three Forces That Create Fallen Angels

1. The business and economic cycle, with the average economic cycle lasting approximately 4 years. Different industry groups will expand or contract depending on where we are in the cycle. Many high quality sectors and stocks temporarily become Fallen Angels when they are effected by recessions specific to their industries.

2. Recoverable calamities can create wonderful opportunities for bargain hunters looking to get an otherwise solid company's stock when it has become a Fallen Angel, due to panic selling. Recoverable calamities often occur when a large profitable, growing enterprise is threatened by a one-time unforeseen loss which, when publicized causes panicky sellers to exit at or near a bottom. Eventually, the company returns to its old levels of earnings growth, propelling the stock price higher.

3. Market crashes and panics is the third force that creates opportunities. When prices plunge because everyone is fearful, even the highest quality companies can be temporarily marked way down. Panics and crashes are relatively rare, making it unwise to wait for them before investing. But when they occur, even the healthiest companies can become Fallen Angels, if only for a short time.

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