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August 18, 2007

After the Meltdown, Which Stocks Bounced?

posted by MR WAVETHEORY at 8/18/2007 04:44:00 PM
I wrote an article called "After the Meltdown, Which Stocks Will Bounce?" on Thursday and on Friday, the Fed lowered rates. I presented two categories of stocks which I thought were buys, headline risk stocks and momentum IPO stocks. These stocks moved big time suprising even me.

First, let's take a look at the headline risk stocks. You will remember these are the stocks associated with the subprime sector. Here's the tally on the subprime stocks I wrote about and the percentage move on Friday. The red figure is how much they were down from the 52 week high before Friday and the green figure is the gain on Friday.

RAIT Financial Trust (NYSE RAS -80%) +12%
CB Richard Ellis Realty Finance (NYSE CBF -72%) -2%
KKR Financial Holdings LLC (NYSE KFN -56%) +8%
Thornburg Mortgage (NYSE TMA -56%) 21%
Friedman Billings Ramsey Group Inc (NYSE FBR -52%) +3%
JER Investors Trust (NYSE JRT -51%) +12%
CB Richard Ellis Realty (NYSE CBG -31%) +13%
Grubb & Ellis Co (NYSE GBE -40%) -5%
Grubb & Ellis Realty Advisors (AMEX GAV -2%) - No Trade

You can see that the worst performing stocks were some of the best performers on Friday. Thornburg Mortgage and RAIT, one of the worst performers this year, were two of the best performers.

The momentum IPO stocks performed well too.

Trina Solar (NYSE TSL -42%) +10%
First Solar (NYSE FSLR -33%) +4%

Trina Solar was the top performer in the solar category. It added 10% which is a nice move. The thesis was simply to buy the IPO stocks with low liquidity and I believe the reason for the sharp gain on Friday is due to the lack of liquidity in Trina. There were so few buyers and sellers in the stock that a little bit of short covering triggered a big move upwards.

Even after the big move Friday, I am still somewhat skeptical as to whether there are more skeletons in the closet. There are reports of a mini run on the bank at Countrywide Bank. Frankly, I'd run too if I had money deposited there. The CEO of Countrywide Financial Corporation (NYSE CFC) announced a pretty significant change in strategy. Rather than originating mortgages with financing provided by other financial institutions, they now intend to more aggressively fund the mortgages themselves. Where's the money coming from you ask? I can only guess that it's coming from the depositors at Countrywide Bank. So simply put, depositors at Countrywide will be lending their hard earned dollars to deadbeat borrowers. I can just see the excitement on the faces of depositors are Countrywide Bank. I can't blame em. If I were a customer of Countrywide Financial Corporation (on the banking side), I'd pull my money out as fast as I can.

I hope more bargains will present themselves in the coming weeks. Happy bargain hunting!

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