There are many types of investment methodology out there. All of them has its own merits. For my part, I personally like to invest in response actions. What are the response actions? They are normally companies that have problems (hopefully short term), and a lot of people are not willing to wait for companies to recover. Personally, as a response action for two main reasons: First, the response actions have problems in the open. The problem has been revealed and our job as investors is to find out how much the company is worth if the problem persists or if the problem disappears. Of course, there could be more problems discovered en route. But at least some of the problems that have emerged and the stock price has generally declined because of that.
Secondly, the expectation is low for the investment of delivery. And stock price is depressed due to known problems. The company does not have to “beat all expectations” time the revenue reports. All you have to do is clean up the problems that cause the price of its shares to be placed in the first place. How to find a potential candidate for the restructuring of its portfolio? The only thing I found is useful to read the financial news. Companies that are in trouble can be seen with the naked eye on the news. For example, this week brought news of Pier 1 Imports Inc. (PIR) and Doral Financial (DRL).
Are these companies in trouble? Sure. Are the candidates of the delivery? Possibly. Another good source would be the list of stocks touched 52-week low. Most of these lists will be the companies that have problems and therefore has the potential to become. For example, ATI Technologies Inc. (ATYT) trade is closed until week 52 of its low of $ 11.20. What to avoid when sifting through lists of potential investment return? I would avoid the company is getting hammered due to the delay in financial reporting. No matter how low the stock price, investors do not and should not invest in companies that have some trust issues. Once we identify our target, we can do some tests to determine the fair value of the shares. Chances are that some companies can not recover. Therefore, we must take that into account when calculating the fair value. Calculation of fair value is a topic totally brand new and not go into details here. But, obviously, an action will have a higher fair value if it can recover from the current problems of a population that can not overcome its current problems.