I am always looking for a good deal, whether that means buying three boxes of Frosted Flakes when they go on sale or pouncing on undervalued stocks. The idea that anybody would sell a stock for less than its worth may seem silly, but legendary value investor Ben Graham tells us, by way of allegory, how we can look out for these situations.
In "The Intelligent Investor," Graham introduces readers to a crazy dude named Mr. Market. Mr. Market's game is to pay you house calls on a daily basis to offer to sell you the interests in businesses that he owns or to buy from you interests in businesses that you own. Sometimes Mr. Market will show up at your door very excited and offer you premium prices for your holdings, while at other times he'll be totally depressed about the future and will offer to sell you what he has for as low as pennies on the dollar.
The sell-off that started last week and bled around 5% from the market is a good example of how Mr. Market can very abruptly change his tune. Were all of the stocks that got whacked really worth less than they were prior to the sell-off? Probably not, and that's exactly why it can be very profitable to stay vigilant.
So to find some of the stocks that Mr. Market is depressed about, I've turned once again to The Motley Fool's CAPS investor community. Each of the companies below had been given a five-star rating (the highest) by our community of investors just 30 days ago:
|
Stock |
30-day return |
One-year return |
Current CAPS rating |
|---|---|---|---|
|
Gulf Island Fabrication |
(25.8%) |
21.5% |
|
|
Jinpan International |
(23.3%) |
124.5% |
|
|
Rand Capital Corporation |
(21.4%) |
190.4% |
|
|
Building Materials Holding Corp. |
(20.3%) |
(38.1%) |
|
|
CompuCredit |
(20.3%) |
(22.9%) |
|
|
24/7 Real Media |
(19.8%) |
(8.5%) |
|
|
IPG Photonics |
(18.8%) |
N/A |
As the chart shows, these stocks are all still fairly well-regarded by the CAPS community despite their major underperformance over the past month. While these aren't formal recommendations, they could be a great place to kick off some further research. I'll even get you started with one of the stocks that caught my eye: Rand Capital.
When it comes to publicly listed alternative asset managers, Fortress Investment Group may be the first to jump to mind. While Fortress was indeed the first asset manager with hedge fund operations to be listed on the U.S. exchanges, a number of companies were already listed in the likewise hot areas of private equity and venture capital. Rand Capital, a venture capital investor, is one of them.
Founded in 1969, Rand focuses on investing in developing companies, primarily in the Buffalo, N.Y., area. The firm invests in a wide variety of industries, and its portfolio ranges from fashion-forward Adam+Eve to boat maker Carolina Skiff and broadband service provider Rocket Broadband.
Probably the most interesting thing about the company right now is the fact that Rand's stock is up more than 150% since September. The stock, which has been characterized in the past as having extremely low liquidity and through mid-2006 still had numerous days when no shares were traded, has seen a huge pickup in volume since the end of September. While results in Rand's third quarter benefited from a big dividend from its Gemcor portfolio company, the share appreciation could have a lot to do with the strong demand from Brown Advisory Securities, which bought 200,000 shares in the last six months.
Brown Advisory, formerly a subsidiary of Alex.Brown (which was acquired by Deutsche Bank), obviously saw a lot of value in Rand's shares and now owns more than 13% of the total shares outstanding.
It's likely that Brown picked up the majority of its shares before the huge run-up in the stock price, which begs the question of whether the stock is worth its current $3.63, or if overzealous traders were simply playing the momentum behind it. In CAPS, where Rand has a four-star rating (including 12 thumbs-ups from CAPS All-Stars), the comments suggest that momentum is the driving force. The only bearish comment comes from drkye, who says:
"[Rand's] portfolio is rather eccentric, and is not making nearly enough profit to justify this rapid increase in valuation. Look for a big fall soon (as we've seen with US Global Investors)."
Now, maybe Adam+Eve (which has been featured on "Oprah") will become a huge hit for Rand, and the firm will be able to cash in with a big IPO or sale. For now, though, I have to agree with drkye's assessment that the stock's huge run seems unsupported by any significant improvement in fundamentals. But, of course, you don't have to agree with me -- you can log on to CAPS and share your own analysis on where Rand's stock is headed. Besides Rand and the other six picks mentioned here, there are nearly 4,000 other stocks rated on CAPS and more than 23,000 investors participating in making it a powerful tool for stock research.
For more CAPS coverage:
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Fool contributor Matt Koppenheffer is currently ranked 5,668 out of 23,901 players on CAPS. You can check his CAPS portfolio here, or tune into his CAPS blog here. He does not own shares of any of the companies mentioned. The Fool's disclosure policy makes investments in your safety and security.
