Wall Streets Worst Performing Stocks: 12/25/07

The vast majority of investors, both individual and professional, become interested in a stock when it is breaking through it’s 52-week high. It’s not very difficult to determine why this happens - prevailing sentiment on Wall Street is that when something is going up, it will continue to go up. Investors who follow a strict value methodology, however, prefer to look for stocks that have gone down. A common strategy among value investors is to “buy when there is blood in the streets.” This coincides directly with the affinity value investors have with beaten down stocks; they are taking a serious beating from Wall Street. The following stocks are down more than 70% from their 52-week highs and have a market capitalization of more than $500 million.

1. Tyco Intl. Ltd.(NYSE: TYC)
2. Countrywide Finl.(NYSE: CFC)
3. Ambac Finl. Group. (NYSE: ABK)
4. Pulte Homes (NYSE: PHM)
5. MBIA Inc. (NYSE: MBI)
6. Doral Finl. (NYSE: DRL)
7. E*Trade Finl. Corp. (NasdaqGS: ETFC)
8. Health Mgmt. Assoc. (NYSE: HMA)
9. US Airways Group (NYSE: LCC)
10. PMI Group Inc. (NYSE: PMI)
11. First Marblehead (NYSE: FMD)
12. Radian Group Inc. (NYSE: RDN)
13. Warner Music Group (NYSE: WMG)
14. McClatchy Co. (NYSE: MNI)
15. CompuCredit Co.(NasdaqGS: CCRT)

Why, you might ask, do value investors favor stocks which have had such a horrible year? That’s a great question! The answer hinges on one simple fact: no one can possibly predict the future with 100% accuracy. Value investors understand this fact and its implications to stock selection.

For example, if an investor were to buy a stock which has performed amazingly well over the past 52-weeks, it is entirely possible it will continue to do well. It is also entirely possible that the stock will fall all the way back down from its high. If an investor were to buy a stock that has had a terrible year and fallen out of Wall Street favor, he or she can be relatively sure that most, if not all, the bad news is priced into the stock. If more bad news comes out, it will have little effect on the stock price. If good news comes out, however, the stock has the potential to soar.

It is important to mention that not just any stock that has fallen is a good investment. There are many cases where a stock has taken a pounding because it is not fundamentally sound. Further research is required to weed out the good from the bad, but this list provides a good starting point.

Freund Investing Managing Member Ryan Freund holds no position in any of the companies mentioned in this article. Freund Investing has a solid Disclosure Policy.