The Motley Fool

Last week’s answer

I define myself as “a services company providing integrated technology solutions that enable our customers to maximize their self-service capabilities.” Founded in 1859 and headquartered in Ohio, I introduced the concept of a cash-dispensing automated teller machine in 1966 and make a lot of them today. I’m a global leader in voting machines, with some 33,000 of my units in use across America. I’ve long specialized in security, offering safes, vaults and electronic security systems. I employ more than 13,000 people in more than 88 countries and rake in about $2 billion annually. Who am I? (Answer: Diebold)


Down, down, down

Many years ago, back in the energy crisis days, I bought stock in a company that specialized in solar energy. The stock started falling. I’d gotten all smart reading that when a stock price goes down, you should buy some more in order to reduce your average price paid per share. I bought that sucker all the way down. I still have the worthless certificates. I learned a lesson never to be forgotten about the dangers of penny stocks and putting all your eggs in one basket. — A.V. Sonny May, Corsicana, Texas

The Fool Responds: “Averaging down” by buying more of a falling stock is a risky activity, since there’s often a good reason why a stock is dropping. If you know enough about the firm and its situation to be convinced that it’s experiencing only a temporary slump, then averaging down can be profitable. Your other lessons are good, too — penny stocks (those trading below about $5 per share) are especially volatile and subject to manipulation and fraud. And it’s always best to have your money spread over a number of investments, perhaps at least 10.

Oil stocks looking slick

There are interesting developments in international oil stocks. If OPEC is able to keep oil priced steeply, the earnings downside at firms such as ExxonMobil (NYSE: XOM) will be limited and their futures will look very sweet — as in sweet crude.

Investors who purchased Exxon a few years ago, properly anticipating fantastic earnings, look at its recent price, below $40 per share, and realize it is a few dollars above the 2000 and 2001 lows — and far from the mid-to-upper-$40s highs.

The story is the same for BP (NYSE: BP), Royal Dutch (NYSE: RD), Shell (NYSE: SC), and ChevronTexaco (NYSE: CVX). They’re gushing cash, yet the stocks are just above 2000-2001 lows. These are the Rodney Dangerfields of stocks: They get no respect.

International oil companies trade at price-to-earnings (P/E) ratios of 12 to 15 and are improving their balance sheets by reducing debt, buying their own stocks and building up cash. This should attract the interest of some investors.

These companies are interesting at recent prices. Their potential total returns, including rich dividends, may meet or beat market averages with minimal risk. For those looking for energy innovation outside of oil, consider BP and Shell. These companies are among the top five solar-cell manufacturers.