Crisis And Opportunity: Investors' Yin And Yang

By Mark Whistler | March 19, 2009 AAA

Quoting Canadian journalist Jan Wong: "In Chinese, the word for crisis is weiji, composed of the character wei, which means danger, and ji, which means opportunity." So, in essence, this means every crisis is loaded with opportunity.

IN PICTURES: 7 Forehead-Slapping Stock Blunders

Taking this information into account, the current global economic turndown is certainly a "crisis" for many individuals, companies and even governments, so there must be some hidden potential somewhere, right?

After all, business conditions are tough (to say the least) globally, while media and credit rating agencies seemingly only make matters worse. Case in point, it's hard to look at Moody's (NYSE: MCO) "Bottom Rung" report with cheer, as the information details (monthly and quarterly) companies facing debt default risk, potentially posing threat to investors. It's also important to remember that reports (like the Bottom Rung) attempt to translate current conditions into perceived future risk.

While the companies included in such reports are struggling today, they have not yet actually defaulted on their debt and continue to fight each and every day to change the present course of events. By understanding that crisis can really spell opportunity, savvy investors (those who are able to see beyond today's continually downbeat news) are truly living in a unique time of potential long-term wealth and prosperity, by being able to identify Wall Street treasures that others have discarded as trash. (For more, see Four Tips For Buying Stocks In A Recession.)

Bottom Rung Opportunity for Savvy Investors
It's easy to look at credit rating agencies with disdain, since in times of strife the firms seemingly circle like sharks around the injured. Let's take a look at a few companies that were recently identified as companies/industries most at risk according to Moody's Bottom Rung report.

Quality companies on Moody's hit list include:

  1. Rite Aid (NYSE:RAD),
  2. Eastman Kodak (NYSE:EK) and
  3. Advanced Micro Devices (NYSE:AMD), just to name a few.

In all, Moody's Bottom Rung list totals 283 companies, though the list has been expanded significantly from the 157 one year ago.

Rite Aid - A Prescription for Healing Business
Mega drugstore Rite Aid is certainly battling the flu, as noted in the stock's landslide from the 2007 high of $6.74 to the current $0.28 cents. Wall Street has seemingly discarded the company as already bankrupt, fearing that fall 2010 debt could be the final nail in the coffin for the struggling chain. However, credit rating agencies and others seeing the glass as half empty have missed a few critical points. Foremost, the Federal Reserve has made no secret that it seeks to bring down long-term interest rates through stimulus and other programs like the term asset-backed lending facility (TALF). This program matters because Rite Aid has stated it intends to refinance a significant portion of its $6.1 billion in debt before payments come due 18 months from now. It's true the refinancing could take nine months to a year, but it likely would be before the payments commence in 2010.

Investors will gain more guidance by diving into the company's plans in the quarterly earnings announcement so there's no rush to buy this stock.

Eastman Kodak - Don't Count Capitalism Out Yet
Eastman Kodak also made Moody's Bottom Rung list, but the colossal firm may be screaming "opportunity" instead at $3.75 a share. Fact is, the company still sees $9.2 billion in revenue and is sitting on $2.15 billion in cash. Though operating in the red and burning cash quickly, the company could still see a turnaround this year through restructuring. What's more, with such significant global reach, it's hard not to believe another more cash positive conglomerate may already be eying Eastman as a potential takeover/merger target.

Advanced Micro Devices - Bottom Rung Rebound
Another Bottom Rung opportunity could be Advanced Micro Devices (AMD), which was seen more than a 40% rebound in the share price over the past two weeks. AMD formally announced the spinoff of its manufacturing facilities into a strategic partnership called GlobalFoundries. For the transaction, AMD received $700 million, while laterally moving $1.1 billion in debt responsibility to the new entity. AMD executed a creative solution to current troublesome conditions, something investors could also see happen in Rite Aid and Eastman Kodak in the upcoming year.

Bottom Line
Overall, it's important to remember that credit rating agencies are darn good at telling someone when a shoe is untied (or, commenting on the obvious). But once the shoe's laced again, it's back off the races, something investors should be aware of in the current economic crisis. For further reading, see Industries That Thrive On Recession and Recession-Proof Your Portfolio.

comments powered by Disqus
Related Analysis
  1. Still More Gains Ahead For Semiconductor Makers
    Stock Analysis

    Still More Gains Ahead For Semiconductor Makers

  2. Earnings Expectations For The Week Of September 15
    Stock Analysis

    Earnings Expectations For The Week Of September 15

  3. Unconventional Drilling Still Has Room To Boom
    Stock Analysis

    Unconventional Drilling Still Has Room To Boom

  4. Finding An Alternative With Currency ETFs
    Stock Analysis

    Finding An Alternative With Currency ETFs

  5. Commodities: Has Their Time Come Again?
    Stock Analysis

    Commodities: Has Their Time Come Again?

Trading Center