Our methodology often helps us uncover deep value, special situation bargains in the financial markets. Just about every year, dozens of high flyers fall in price to a fraction of their former value. When this occurs, the companies are commonly referred to as Fallen Angels. Fallen Angels can also include other high quality investments that may have been steadily rising, but are priced at or below our half-off valuations. We buy these and other opportunities when we believe they have 100% upside potential over time, and we sell them when our research indicates it's time to.
The Three Forces That Create Fallen Angels
- The business and economic cycle, with the average economic cycle lasting approximately 4 years. Different industry groups will expand or contract depending on where we are in the economic cycle. Many high quality sectors and stocks temporarily become Fallen Angels when they are affected by recessions specific to their industries.
- Recoverable calamities can create wonderful opportunities for bargain hunters looking to get an otherwise solid company’s stock when it has become a Fallen Angel, due to panic selling. Recoverable calamities often occur when a large profitable, growing enterprise is threatened by a one-time unforeseen loss which, when publicized causes panicky sellers to exit at or near the bottom. Eventually, the company returns to its old levels of earnings growth, propelling the stock higher.
- “Market crashes and panics” is the third force that creates opportunities. When prices plunge because everyone is fearful, even the highest quality companies can be temporarily marked way down. Panics and crashes are relatively rare, making it unwise to wait for them before investing. But when they occur, even the healthiest companies can become Fallen Angels, if only for a short time.
For clients in our Growth, Growth & Income and Retirement Income strategies, we will often include stocks that we have identified as Fallen Angels as part of a diversified portfolio.
Learn more about the Fallen Angels Investment Strategy for your account, contact Gabriel Wisdom at gwisdom@amminvest.com or call 888-999-1395.
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