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Dividend and speculative stock picks

J.W. Cotton
0 Comments| October 28, 2008

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Stock markets are in a panic because credit markets are freezing up and companies can’t get the credit they need. This is a big problem, which can cause widespread corporate slowdowns and bankruptcies. As people lose their jobs they can’t pay their bills or mortgages and, thus, even more bankruptcies – 1930s all over again.

The Dow has dropped about 5,000 points in about five months. At this rate of decline, it will be at 3,000 in five months, which we don’t believe will happen, but it could – scary. It takes courage to buy in a panic situation, but we believe the best course of action is to begin buying quality stocks with good yields, which are selling at a fraction of their former prices, and where insiders are also buying.

For example, Cincinnati Financial (22.23), yielding 7% and was $45 a year ago. And, Dow Chemical (23.86), yielding 7% and was also $45 a year ago. We would only be 40% invested at this point.

We think the following stocks are bargains, but if we get a real panic sell-off they can get even cheaper, so we would buy half of our allocation here and put in good-till-cancelled orders at prices 50% lower and just wait (prices are as of Friday ): Cincinnati Financial (CINF) 22.23; Dow Chemical (DOW) 23.86; Steel Dynamics (STLD) 9.59; Continental Resources (CLR) 22.49; Peabody Coal (BTU) 29.68; Developers Diversified (DDR) 8.08; Celldex (CLDX) 6.23; and China Direct (CDS) 2.50. But our normal buying strategy is: Buy 40% NOW and 30% more on each 20% decline from the original buy price. We think our penny stocks (which we own) CVM at 32 cents and MDIN at .0002 cents are fantastic gambles at these prices.

We also like the following very speculative stocks, which are way down from their highs (prices are as of Monday): HSN, Inc. (HSNI) 6.09; Synthesis Energy (SYMX) 1.69; Northern Dynasty Minerals (NAK) 1.88; and Chienere Energy (LNG) 1.70. 

We also like the following options: Canadian Solar DEC 7.50 CALL (.GQALU) – asking price was 2.65 Friday; and ReneSola DEC 5 CALL (.SOLLA) – asking price was 1.60 on Friday. Option trading is extremely risky, and you can easily lose 100% of your money trading options. 



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