Business with issues of high debt , adverse regulatory ruling and low capacity utilization can be traded similar to call option trading with huge upside ( when environment improves) .The added advantage is time premium is zero and probability of price going to zero is also low.
Such business can be bought if it qualifies following condition
1) General economy is under downturn and min two years has passed since beginning of downturn . Hence positive revival probability is high
2) Management quality is high grade and in past they have been fair and open about industry and company condition
3) Operating Cash flows are higher than Interest payments
These stocks needs to held for three to five years and hence staying power is critical . Hence one should avoid buying these stocks on margin under all circumstances
Successful investing is all about being crazy , different and less wrong than others . The ideas and process written here may not suit all risk profiles so please check with your financial "doctor" before adopting .
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