Captain Ahab was proved dead wrong when he went after Moby Dick. Captain Nemo encountered considerable misadventure 20,000 leagues under the sea. Now, the 1990 stock market having taken a plunge to the depths, some stalwart captains of investment have begun charting a stock-buying course which they hope is destined to provide a quality catch.
"Bottom fishing" is the term for purchasing stocks whose prices have sunk so low that they appear ready to float back up to the top. This practice is not for weak-kneed landlubbers, but the adventuresome willing to accept the risk that market matters could get worse before they improve.
While no one would chide for contracting motion sickness in this volatile market, you might ponder the possibility that now is the time to buy selected stocks. Three major investment letter editors tell me that, while there might conceivably be further market slippage, it is time to get your feet wet again.
"I believe we're bouncing along the bottom, and the stock market will flop like a fish out of water for some time, providing the best buying opportunity in three years," declared Louis Navellier, editor of the MPT Review investment letter, based in Incline Village, Nev. "By picking companies with the best earnings, you'll be picking the stocks that should rebound the most, though we don't really know if the marketwide rebound will come in two weeks or two months."
Navellier's current favorites are medical firms such as Medi Care International, Surgical Care Affiliates and Candela Laser, and software firms such as BMC Software and SynOptics Communications. He also likes one oil services stock, Oceaneering International, and a couple of Israeli firms, Scitex Corp. and ECI Telecom.
"This is a good time to go bottom fishing because, even if we are not at a market bottom, there are good values available," emphasized Arnold Kaufman, editor of the New York-based Standard & Poor's Outlook investment letter. "Just keep firmly in mind that bottom fishing is a difficult exercise fraught with risk, with the potential for a whiplash from unforeseen events in the Middle East or elsewhere."
Kaufman's picks from the deep are American Home Products, K mart, Olin Corp., J.C. Penney, Woolworth Corp. and NBD Bancorp. Defensive stocks worth accumulating are Gerber Products, Johnson & Johnson and Rite Aid. He expects strong rebounds from Browning-Ferris Industries, Cooper Tire & Rubber and Dreyfus Corp.
"The majority of stocks have reached their low point and, with the possible exception of oil stocks, are very much undervalued and appropriate for bottom fishing," said Stephen Leeb, editor of the Alexandria, Va.-based Personal Finance investment letter. "Historically, virtually every major crisis in the post-war period has led to a major bull market." Leeb thinks highly of drug stocks near their historical lows, among them Eli Lilly, Merck and Bristol-Myers Squibb. Also attractive are General Electric, Gillette, Ford and GTE Corp., he believes.
Those who sign up for this bottom-fishing voyage must keep in mind that not all stocks perform the same in market downturns or upturns. For example, even in a stormy period like the past 12 months, there have been big winners and big losers.