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New York. You can hate the cars but still love the stock.

Lost in the recent headlines about Toyota’s recall over faulty accelerator pedals and brakes was news of a remarkable feat for an auto manufacturer these days: The Japanese company actually made a profit last quarter.

Which raises an intriguing possibility: If Toyota strings together more profitable quarters, will investors kick themselves someday for missing a chance to have bought what is still arguably a great company on the cheap?

Sean Thorpe, joint manager of foreign stock investments at Reed, Conner and Birdwell in the United States, thinks so. He will talk your ear off about his profit estimates for Toyota and where he thinks the stock, down 19 percent in three weeks, should be.

Whether he is right is less important than his instinct: Buy on the bad news, not the good.

It is a tiresome platitude, but the fact is, investors frequently do the opposite, taking comfort in buying and selling along with the crowd. The history of investing, and during recalls in particular, shows this is often a mistake.

“Recalls can be a buying opportunity,” says Gene Grabowski, senior vice president of crisis manager Levick Strategic Communications. “There’s usually a substantial blow to the shares, but they typically climb back in five or six months.”

Buying on bad news, recalls or not, has been the route to riches for many famous investors.

The late philanthropist John Templeton, for instance, made a killing scooping up slumping shares in dozens of companies in 1939, and with borrowed money no less. Warren Buffett bought stocks during the bear market of 1974. Instead of fear, he felt “like an oversexed guy in a harem.”

Of course, there have been plenty of examples of bold investors who got it wrong. Billionaire Joseph Lewis put $1 billion into Bear Stearns before it collapsed.

The question for Toyota investors: How much worse is the news going to get before it gets better?

Rebecca Lindland, an analyst at researcher IHS Global Insight, suspects a lot worse.

“This is a company used to accolades, not accusations,” and may not have faced up to all the problems with its cars, she says.

She thinks the hit to Toyota’s reputation could hurt sales for years even if it has come completely clean already.

But Thorpe, the Toyota bull, thinks the wind is at the company’s back now that the economy is recovering. His bet is that recalls will be a “vague memory” in a few years. Buttressing that view, car retailer AutoNation chief Mike Jackson said he expected Toyota to quickly regain “most of the share that it lost” to competitors.



Associated Press