Investing Made Simple by Will The Geek

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Investment methods used by some of the most successful investors in the history of the stock market, Made Easy.

The Power of Undervalued Stocks

The most reliable and profitable of all the investment strategies.

What is an Undervalued Stock? It is a stock that is selling below its fair market value, especially when compared to other companies like it. For a stock to be considered undervalued, it should have the following qualities:

  • Price near or below book
  • Low Price to Earnings ratio
  • Low Price to Sales ratio
  • Still has solid financials like:
  • Recently increasing sales
  • Falling debt or better still, no debt
  • Stock price is beginning to rise on increasing volume

Trading in this group has has proven itself time and again as long as the market has been around. It is the favorite of Warren Buffet, Peter Lynch and many others. The old saying of “Buy low, sell high” applies to these stocks.

Although sometimes these stocks do trade for pennies, they are actually top quality companies that are going through rough times. Here is one example of the power of undervalued stocks:

The American Airlines Story

While developing this website, I had just added a new kind of strategy for finding undervalued stocks. One of the first companies that popped up on the list was American Airlines. The reason it showed up was because it had a huge number of assets and no debt. It was also …

  • In bankruptcy
  • Merging with another airline
  • Has a huge amount of assets
  • Business was increasing – sales were up
  • Would soon emerge as the world’s largest airline
  • Had no debt as bankruptcy had wiped it all out
  • Other airlines were trading at around $35 per share

This picture shows the condition of American Airlines as it appeared on December 6, 2013

As you can see, the price on that day was $11.39. But just one year before that the price was only 38 cents! The date then was November 2, 2013. It peaked on November 22 at $12.06.

Sorry to say, I did not get in at 38 cents. By the time I found it, the price was over $4.50 and rising. I moved fast and purchased shares at $4.68. By the time I got in, it had already gone up over 1200%! Over 12 times the purchase price in just a few months!

But it went up another 250% from where I bought it. Now normally, I would have quit right there. A 250% increase in 6 months is a great return in anybody’s book. So why didn’t I quit while I was ahead?

By November 22, the stock peaked at $12.06. An astounding run in less than one year. So back to the question:

Why didn’t I just grab the money and run?

Because the stock was not done yet and I knew it. In fact, it was just getting started. Remember, they were in a merger. If approved, they would emerge as the world's biggest airline. Other airline stocks such as Delta were trading at around $35 per share.

But two things made me hold on. Now understand that I normally don't trade bankruptcies. When a company goes belly up, the stockholders get hosed. All shares are now toilet paper. Why should I invest in a dead cow? But this was different. They did something I have never heard of before:

They promised that if the stockholders would hold on and see them through the crisis, they would replace our shares with equivalent value in the new company. In addition, they would add some bonus shares to sweeten the deal.

So I decided to stay with them. I must admit, when the old ticker closed out and my shares dropped to zero, my heart also dropped with it. It was an anxious time while I waited to see if they would keep their word.

A New Company Emerges

When the company opened with a new ticker – AAL – it opened at about $26. But I still had no shares. I was in a panic that I was going to lose the thousands of dollars I had invested. It was not until January of 2014 that I received the first installment of my replacement shares. My spirits began to rise. They replaced at almost full value. Over the next four months, they replaced all my shares and then added a bonus month of additional shares.

The price quickly rose to over $40 per share. And as if that were not enough, they also began paying a 10 cents per share dividend. AAL continued to march upward, peaking at around $55 per share. I decided to recover my investment, so I sold part of my position at $45.

My total run was 960%! Not bad! I recovered all my money, and I still have shares left over paying me a dividend! But if, like me, you think that is great, what about those that did buy at 38 cents? Even a small position would make them millionaires!

11,800% Are you kidding?

Absolutely not. Those lucky people that got in at 38 cents made over 11,800 percent return in one year. Who says you can't make money in the short term? You just have to have the tools to find these diamonds while they are still in the ground.

A Footnote to This Story

American Airlines was a unique example. These are rare occurrences, but they do happen. You just have to be there when they do. You also have to be prepared - In other words, have some money ready. Take this story for example.

Finding Undervalued Stocks

Notice something interesting about this story? Literally none of the large investment houses was watching this stock. No broker or money manager would recommend it, but it was an absolute no-lose situation.

How do I know? It was under the radar! The trading volume had dried up. That means that none of the large investors were interested. Funds and large investment houses don't trade anything under $5.00 per share. Some won't touch anything less than $10.00. But that is where all the money is made!

So, Do You Want Find Deals Like That?

Of course you do. You are not stupid. You just have to have the right information at the right time. That is what Will The Geek is all about. Finding American Airlines was as simple as clicking on a single button in the Undervalued Strategies section at Will The It’s that easy. All the hard work and research is done for you.


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