Q: If you didn't have any shares in these companies wouldn't this be a good time to buy and slowly add over the next couple years. My thinking is CTS just has to go back to three dollars and your up 20%. They are buying back shares, dividend, huge ebitda etc. Board makes a few tweeks and sentiment and direction changes. I understand if you have a position to hold. Do you generally agree with the above.
5i Research Answer:
Investors can certainly make money by chipping away on the buy side of beaten-down stocks. But it can be painful at times. Both companies are somewhat leveraged, and in a weakened economy or a market correction we would still not expect them to perform well. Fundamentals have deteriorated somewhat, so there are execution risks and market risks. Frankly, we prefer companies with better execution because market risk is hard enough on its own. We would at this time be more reluctant to start a new position: it can take some time before a disappointment results in a stock bottoming.