You Could Still Double Your Money With These Stocks

The gains are already near “ridiculous” levels…

Two months ago, I showed you four “bad to less bad” trading ideas… I told you these sectors would be good for 50%… 100%… even 200% gains.

Since then, all four of those sectors have started to rally. One benchmark stock is already up 44%.

But I believe these moves are just getting started.

I believe you could still double your money from here.

Let me explain…

Longtime readers know “bad to less bad” situations are an incredible source of low-risk profits…

“Bad to less bad” is a phrase coined byTrue Wealth editor Steve Sjuggerud.

It involves buying assets that have suffered through horrible times, digested those horrible times, and are poised to run higher.

The horrible times can be caused by sectorwide downturns, natural disasters, or broad economic factors – like a recession.

After an asset suffers through a horrible time, no one wants to buy it. It won’t appear on newspaper or magazine covers… Publishers know the idea will repulse readers.

It’s around this time – when most people can’t stand the thought of buying that asset – that it will trade for less than its real, intrinsic value… or it will trade at a paltry level in relation to its earnings power.

In this kind of “bad” condition, you can often buy an asset for half of its book value… or just five times earnings… well below “normal” levels.

If you step in and buy amid the pessimism, you can double your money if a bit of optimism returns to the market and sends the asset back to normal levels. Keep in mind, it doesn’t take great news to double the price of a cheap, hated asset… things just need to go from “bad to less bad.”

I believe we’re seeing that happen right now in the sectors I pointed out in August.

One sector I covered is steel. As I showed you in October, sluggish economic growth and excess production capacity crushed steel stocks.

America’s largest steelmaker, U.S. Steel (X), fell from a high of $60 in early 2011 to a recent low of $16 – a 73% decline.

But investors are warming up to the idea that the global economy is gradually improving. And as you can see from the two-year chart below, U.S. Steel has “popped” over 44% since my late-August essay (and our DailyWealth Trader readers are profiting).

Another “bad to less bad” sector I told you to consider is coal…

As my colleague Matt Badiali pointed out last week, natural gas competes with coal… and natural gas prices have been low for several years. From April 2010 to June 2013,Peabody Energy (BTU), the benchmark U.S. coal stock, lost 80% of its market value.

But as you can see from the chart below, the stock is climbing off its bottom. It’s up over 16% since my essay.

Matt showed that for Peabody to trade at its five-year average price-to-book value, shares would have to double from here.

I also covered emerging markets… stocks in “less developed” countries, like Brazil and Russia. These markets are dealing with a slowing Chinese economy and local inflation problems.

But as my colleague Steve Sjuggerud has pointed out, emerging-market stocks are “crazy cheap.” And now the trend is bullish.

EEM is a large fund of emerging-market stocks. It dropped 18% this year… but has moved sharply higher and is near a new 52-week high.

If China’s slowdown is simply “less bad” than folks expect, these stocks could return 50%-100%.

The biggest winner in my “bad to less bad” trades was secondary education…

The sector is dealing with government investigations and lawsuits. It’s earned a terrible reputation for saddling graduates with unprofitable degrees. And Apollo Group (APOL), a sector bellwether, lost 72% of its value in just over a year.

But last month, Apollo surprised investors with earnings that were “less bad” than expected. Shares jumped as much as 25% in a single day.

Shares would have to double from here before they even approached last year’s highs.

Back in August, most folks would have called you crazy for considering an investment in any of these sectors…

That’s the thing about “bad to less bad” trades. It takes a contrarian’s “iron stomach” to enter them. Your natural crowd-following instincts will fight you.

This is why one of my favorite classic trading quotes is: “The hard trade is often the right trade.”

Also, because of the pessimism surrounding the asset, your trade has little downside risk. Everyone who wanted to sell has already sold. The selling pressure is exhausted. The downside risk gets “wrung out” of the trade.

This dynamic makes “bad to less bad” trading a constant producer of low-downside/high-upside investing and trading ideas.

When it comes to these four sectors, some of the early, easy profits are gone. Things are already getting “less bad.”

But these rallies could continue much higher. They could be good for another 100% or more from here.

– Brian Hunt

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Source: The Growth Stock Wire