Chapter 3: Oh, How the Mighty Have Fallen
1. Fallen
Angels are companies that were once considered blue chip or growth darlings
that have fallen monstrously out of favor with Wall Street and investors. Out
of a sudden, these are truly stocks that are perceived by investors as
monstrous and to be avoided at all costs.
2. However,
aversion can signal opportunity in stock market.
3. There
are two key questions to ask when you come to identifying true fallen angels:
a. What
went wrong?
b. Can
it be fixed?
4. Companies
that are going to escape from single digits and become Wall Street darlings
once again are going to have to be more innovative and fight their way back to
solid sales and earnings growth to see their stock price restored.
5. Ways
to find fallen angles:
a. You’ll
need to assemble a list of fallen angel candidates (from reading the media).
b. Read
Barron’s by going to the Charting the Market section and scanning the week’s
losers for names you recognize.
c. Review
the current list of S&P 500 stocks for those trading under $10.
d. Use
a stock screener to look for stocks with market caps of $1 billion or more and
that trade below $10.
e. Keep
this in mind: if you are fairly active around the markets and have never heard
of a company on the list, it is automatically not a fallen angel.
f. Once
you have a list of stocks, ask What went wrong? and Can
it be fixed? Review each company’s 10Q and 10K for answers.
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