Thursday, January 10, 2008

Dirt Cheap Stock Picking: Chapter 3

I haven't posted a blog for a while so I am back at it again! Lately, I have been getting interested in two sectors, investment banks and biotech. British billionaire, Joseph Lewis, has been accumulating shares of BSC to the tone of 10% of the company. Both BSC and MER has lost almost 50% of their value since their last peak price. This implies that these companies have to loose half of the topline forever for price to get so low. I think the potential for these two is quite robust in long-term and these kind of discounts cannot last forever. I see a downside of maybe 10% to 15% lower than current levels, but then serious multiple expansion should take place after 2009. SNY, NVS, and even BIIB (ETF) show signs of recent recovery and probably a come back in 2009. DNA and AMGN, despite recent disappointments, seem to have held themselves. PE multiples for DNA and AMGN and even SNY is in high teens and low 20s. For biotech giant, that seem quite low. I can see more softening for all of these in 2008, but potential for PE expansion in 2009 onward is quite good.

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