Since the recession, I have based my large-cap stock purchases on whether or not the companies have reached their pre-recession prices. Of course, I consider many other factors before buying, though comparing the current and pre-recession prices have triggered major gains in my portfolio. But is it too late to pick up shares of a stock that is undervalued due to recession pessimism? In short, no.
People still have hard feelings about stocks that either caused them personal grief (such as those in the banking sector), or companies that received a bailout as much of the rest of the world struggled to keep food on their tables. These persisting hard feelings have kept prices down, and show stellar buying opportunities. But that trend is waning, with many major banks such as Bank of America Corp (NYSE:BAC) gaining about 100% in the last year. Furthermore, nearly five years after General Motors Company (NYSE:GM) and American International Group Inc (NYSE:AIG) received massive bailouts, they were once again added to the S&P 500 recently after being kicked off about four years ago. That isn’t enough to buy the companies, but it brings credibility back to these billion-dollar firms.
Uncork the campaign
Rejoining the index marks a major accomplishment for the companies, as they try to shed the negativity felt by those who were sour about the bailouts. This is certainly a victory for GM and AIG, which have been working diligently to return to the respected index.
The firms listed on the S&P 500 are perceived as leaders in the industries they represent, so GM and AIG look like they are finally out of the dog house. While there were slight surges in prices after the announcement, that bullishness will likely last due to the confidence the S&P 500 has shown in these companies, and that makes for sound long-term investments.
GM could rise sharply if it gets a better handle on the electric vehicle market. On June 10, the company announced a $5,000 discount for the Chevy Volt. GM is definitely in the running for selling the most electric vehicles. In May, the firm sold 7,157, compared to the Nissan Leaf sales of 7,614. With prices beginning to drop, there could be a surge in those buying electric vehicles. However, HybridCars.com reported electric vehicle sales only represented 0.5% of total car sales in May.