Closeout Sale on Cratered Stocks

Behold the almighty dollar!  The things it no longer buys could fill a thick volume on the history of the American economy. But according to Bankrate.com, while today’s dollar has the buying power of a breathtaking four cents in 1915, you can still find some surprises under a buck. Care for some earrings; a Megabus trip in the U.S., Canada or Europe; perfume samples; a pregnancy test; even a slightly used copy of the Hemingway classic The Sun Also Rises, in supposedly “excellent condition”? At least you’ll get something for your money.

By contrast, according yesterday’s USA Today, there are the three hundred and fifty-nine bargain basement stocks you can buy for under a dollar a share – at least as of Thursday.

During the first two months of 2016, the number of Russell 3000 stocks trading at or under a dollar is up four hundred and twenty percent over five years ago. In 2014 just two stocks in that index traded for a dollar or less; this year the number is up to forty-two. Even more disquieting is the negligible ninety-three million dollar average market value all these particular stocks represent.

You don’t even have to buy that cheaply to be in the danger zone for stocks.  The Securities and Exchange Commission (SEC) considers any stock under five dollars a penny stock. Unfortunately, too many investors are inclined to comb through them in the fruitless search for the next Google, Facebook or Apple.  But since, as USA Today points out, many are casualties of the tailspinning energy industry, there’s not much chance of finding the next breakthrough innovative tech giant here.

Moreover, penny stocks are fraught with financial and legal landmines. It can prove difficult or downright impossible for an investor to find sufficient information on them to make an informed investment decision. These companies aren’t required to fulfill minimum SEC standards, and usually suffer from an appalling, yet foreseeable, lack of liquidity.  Load up on penny stocks, and you can find yourself adrift in a sea of hype and zero value.

But then you have gold. While the NASDAQ and Dow have been down, gold prices are up about fifteen percent this year.  Gold is by far one of the best-performing assets this year.  According to information from the U.S. Mint, sales of American Eagle coins have had their most successful January in years.

In addition, gold has a built-in immunity against the very economy that gutted these “bargain” stocks, which explains why investors have been quickly moving funds to the precious metal this year, and away from such hollowed-out equities.

As stocks continue to fall, gold will perform well.  And if our Fed ultimately caves to the negative-interest trend, the shiny metal will soar even higher.  Once U.S. bank depositors appreciate there’s no future in paying a bank to hold their dollars, they’ll seek refuge in this time-tested tangible asset. Personally, I’m stocking up before the rush.