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The successful truck driver’s guide to investing

Revealed in this U.S. advisory — the investment strategy that turned a delivery guy into a full-time investor and investment teacher.

This is not an infomercial, it actually happened. The story begins over lunch, as the editor of a market letter talks to a long-time subscriber and friend.

“When I first met Steve 20 years ago, he was a truck driver delivering bread. Today, he makes a good living by investing and traveling about the country teaching about investing.

“While we were reminiscing, Steve said the best advice he got from my book and newsletter was to enter a bid to purchase a stock for a price lower than the market (the price the stock is currently selling for). He likened it to getting the stock on sale.”

Steve’s friend is the editor of The Cheap Investor. It is not unusual, by the way, to find an upbeat story in this advisory even when the markets are in turmoil. It rarely gets into a funk about the market.

Indeed, if you specialize in microcap and turnaround stocks, you should be perfectly happy to pick up other people’s discards and make something of them. Let the markets do their worst, there are always profits to be made. In that sense, this advisory is certainly true to its calling.

But back to Steve’s lowball bids.

A great time for bargains

Steve is right, in the editor’s opinion. He has been advocating the below-market bid strategy for decades. “While an investor occasionally misses a stock because it doesn’t dip low enough for his buy order to be fulfilled, in most cases the tactic works well.”

Right now, it should work brilliantly. With the volatile market of the past few weeks, “this is a great time to take advantage of the opportunity to purchase a stock at a bargain price.”

We’re not sure how bad the market would have to be for this advisory to throw up its hands in despair, but it would probably have to be something as awful as Black Monday in 1929, or worse.

Shortly we’ll examine a few stocks the advisory thinks are good buys at the price as well as a few examples of below-market bids. First, we’ll find out why a recession may not be in the cards after all.

Bad news breeds more bad news

Why has the market been so volatile? “Just listen to the radio or watch the news on TV,” says this advisory. All those stories about the soft real estate market and subprime mortgage writeoffs have taken their toll on investors.

“Such news has been a catalyst, dragging down financial stocks.” In other words, the constant repetition of bad news serves to create more bad news. “Unemployment moved up to 5%, and the media has had a field day with dire predictions of a recession.”

That is ironic, says the editor, since 5 per cent was considered “full employment” in the 1990s. Indeed, unemployment averaged 5.6 per cent from 1990 to 2000 and 5.2 per cent from 2000 to 2007.

“We assume the small jump in unemployment wouldn’t have been such a big deal, except that this is an election year.”

Then on January 17, when Federal Reserve Board chairman Ben Bernanke went before Congress and did not announce a lowering of interest rates, the market plunged (as you may remember). Five days later, the Fed pulled a surprise cut and the markets started to pull out of their nosedive.

No recession in 2008

But for the editor of this advisory, Mr. Bernanke’s key statement lay elsewhere. The most important statement he made in his January 17 speech “was that the U.S. economy is not headed for a recession, and I concur. Higher unemployment and falling prices for energy, commodities and housing are indicative of a slowdown, but there will be no recession in 2008,” he states conclusively.

The government defines a recession as two consecutive quarters of negative growth in the Gross Domestic Product (GDP). The GDP actually grew 4 per cent in the last quarter.

“The major problem seems to be plummeting consumer and investor confidence,” says the editor. “Perhaps it’s the combination of the usual bashing of the current administration during an election year, record breaking oil prices and a soft real estate market.” At any rate, many investors are sitting on the sidelines, waiting to see what happens next.

Fear not, says this advisory. “We think the market will turn around quicker than analysts are predicting, and we can profit from the current market volatility. Now is the time to buy bargain-priced stocks so you can reap huge profits when they rebound.”

In this corner of the investment world, at least, the silver lining always seems bigger than the black cloud. Time to check out a few bargains.

For those who can stand the risk

One stock featured in The Cheap Investor immediately caught our eye. We found the same stock highlighted earlier this month as the stock of the year by another U.S. small cap advisory (Daily Buy-Sell Adviser, January 21).

The stock is eFoodSafety.com Inc. (OTC-EFSF) and it has four very interesting products. One is a liquid supplement called Cimmergen™ that regulates blood sugar and reduces cholesterol levels without side effects. Another is an anti-acne skin cream called PurEffect™. The Immune Boost Bar™ is a non-dairy, non-refined sugar all-natural nutrient that helps fortify the immune system. The company’s MedElite subsidiary distributes products to physicians, including a clinically proven Scar Cream.

There are several more products in the developmental stage, and the company seems to have a pretty good record of hitting the market with successful products. Its annual revenues are expected to come in at over $1 million with a loss of $2 to $3 million. There are about 165 million shares outstanding.

Says this advisory: “The stock is very speculative, but is an interesting play for those who can stand the risk. Each year for the past two years, the stock more than doubled from $0.21 to the $0.50 level. If the company starts to generate significant revenues from its product line or is able to report good news about its products in development, it has the potential to move at least 50 to 100% in the next year or two.”

It has scarcely moved at all since we first reported on it just over a week ago. Then it stood at $0.21. Today it opened at $0.20. All we can say is that people who like risky stocks seem to like this one.

Election year polls

Let’s take the pulse of a stock that’s trading at a more substantive price — about 15 times greater than the speculative entry above. And yet it is not trading as high as it ought to be, according to this advisory.

“We thought it would be interesting to take a look at a stock that is selling near its 52-week low,” says the advisory, “yet in this election year it is quoted almost every day by the news media.”

Harris Interactive Inc. (NASDQ-HPOL) is one of the largest and fastest-growing market research firms in the world. This is certainly no Johnny-come-lately firm — its independent Harris Polls® have been published and quoted for years. The company has also been a pioneer in online market research: it has built what it believes to be the world’s largest online panel of survey respondents, the Harris Poll Online.

Insiders own about 27 per cent of the 52.6 million shares outstanding and 85 institutions own about 65 per cent of the 44-million share float. The balance sheet is good, with cash of $24 million, a book value of $3.25 a share and debt of $35 million.

“The major negative is that the stock has been in a downward trend, and you should consider waiting until Harris releases its second quarter results on February 1.” The first quarter results were actually pretty good, so the mystery deepens.

“Over the past five years, Harris Interactive historically traded between $4 and $6. We’re not sure what has caused the stock to drop to such a low price.” Especially in a year when the polls are getting a heavy workout (maybe it was those wildly off-target poll numbers in the New Hampshire primary that scared off investors).

In fact, the stock has moved up a little since this issue was published. Harris stood at $3.05 then, it’s at $3.17 now.

Well-hammered blue chips

We’ll conclude with a few of the advisory’s “year end hotline” recommendations. These are stocks the newsletter likes precisely because they are due to get hammered by tax selling in November and December before they rebound in the New Year. Basically, this is the “Steve” philosophy, entering a bid below market price.

This year the advisory ventured away from the usual microcaps and picked two blue chips — Bank of America (NYSE-BAC) — can’t get much bluer than that — and luxury residential builder Toll Brothers Inc. (NYSE-TOL). This year, as well, the market plunge has extended the deadline for low bids.

The advisory recommended Bank of America at $41, which was close to its 52-week low (it also likes the $2.50 annual dividend). “We would consider purchasing shares at $36 to $37,” adds the editor. The stock hasn’t moved down, however, opening at $41.84 today.

Similarly, Toll Brothers (which as a luxury builder is not directly involved in the subprime mess, although it cannot entirely escape the consequences) has moved up rather than down. The advisory suggested a price of $15 or $16 while the stock was trading at $17.29. Today it opened at $22.19.

That doesn’t mean it is necessarily approaching its ceiling. During the height of the housing boom in 2005 it traded at $58. It does mean that it’s not heading in quite the right direction for those who put in a low bid.

But you get the principle. If a good stock looks like it will take a temporary beating in the market, bid low and hope to sell high.

It got Steve out of his bread truck and into the seminar room. Not that there’s anything wrong with driving a bread truck, but the hours are a little better in the seminar trade, we hear.