When I first started trading equities, I read an article about how special it is the first time you double your money on a trade. At the time I was skeptical that I would ever see the double in my own portfolio. But just the following week, I was researching biotechnology companies for my fledgling portfolio and fortuitously looked up at the television when there was a biotechnology analyst talking about his top picks on CNBC.
I am fairly skeptical of stock analysts' reports. Often the relationship between a company and the analysts following a stock seems a bit too close and, therefore, unseemly to me. Also, analysts as a group tend to be wrong about individual stocks, and so if most of the analysts following a stock rate it as a buy, I wonder whether the stock can go any higher with all of the cheery optimism about the stock price. Usually on such an occasion of over-optimism I would rather sell the stock than buy; yet, I do find analysts' picks to be a good place to start research on individual stocks. On this day the analyst recommended Genentech (DNA) as his top biotech pick. I had a friend who recommended Amgen (AMGN) and who already owned some shares of AMGN. I had been about to go with Amgen as my biotech choice when at the last minute, owing partly to the analyst's tip, I bought Genentech instead. Then fortune smiled upon that pick, because the following week Genentech's cancer drug Avastin showed more promise than most of the analysts had previously expected, and almost overnight the stock doubled in price. I had bought the stock at about $40, and now the stock was trading above $80. It was luck, just glorious luck. I sold.
Now I'd like you to get your first double, unless this isn't your first, in which case I'm sure you won't mind another. I suggest that you buy Bank of America (BAC), one of the world's most hated stocks. There is so much pessimism surrounding this stock that you may have gasped when you read the name. Do I mean the hated bank whose fate is tied to the deflated American housing market? Yes. Do I mean the company that was involved in the near failure of the global financial system? That's the one. Do I mean one of the evil banks that everyone hates after we bailed it out because it was too big to fail? You betcha. Lately, in addition to being hated by the investment community, the federal government has piled on with threats of strict interpretation of new regulations for banks as systemically important as Bank of America. Also, everyone is nervous about Bank of America's potential exposure to bad Greek debt. Haven't you noticed the violent Greek crisis we're going through?
My claim is that Bank of America will double within the next three years. It may even double by the end of 2012. Here's why. I think the housing situation can't get much worse. If it does get worse, you'll have a lot more to worry about than having to wait a little longer for Bank of America to double. Also, betting on a BAC recovery is basically betting on an eventual recovery in the U.S. economy. Neither the stock market nor the jobs situation can recover without the banks lending at a healthy level, and when the banks lend at a healthy level, BAC will be your double. Currently, BAC is trading at about $10.50. The last time the stock traded at levels this low was during the first four months of 2009, when we narrowly avoided a depression. The stock should not be trading at such generational crisis levels now. We are not going back the dark days of a near-depression for a long time, if ever in my lifetime. I own many shares of BAC, and if the shares get much more depressed, I'll buy more. It's a good candidate for your first double.
Oh, so Genentech was later purchased by the European drug giant Roche; therefore, DNA no longer trades as a stock, but I shall never forget her.
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