I'm always looking for a good deal, whether that means buying an extra box of Cocoa Puffs when they're 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 guy named Mr. Market. Mr. Market's game is to pay you house calls on a daily basis, offering to sell you interests in businesses he owns, or to buy from you interests in businesses you own. Sometimes, Mr. Market will show up at your door very excited, offering you premium prices for your holdings. Other times, he'll be totally depressed about the future, offering to sell you what he has for as low as pennies on the dollar.
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:
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30-Day Return
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One-Year Return
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Current CAPS Rating
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ProCentury (:PROS)
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(22.28%)
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37.30%
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****
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CT Communications (NASDAQ:CTCI)
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(17.87%)
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37.21%
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*****
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Gammon Lake Resources (AMEX:GRS)
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(15.93%)
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10.96%
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***
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Northgate Minerals (AMEX:NXG)
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(13.9%)
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(10.73%)
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*****
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Aurizon Mines (AMEX:AZK)
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(14.07%)
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19.57%
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*****
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United Retail Group (NASDAQ:URGI)
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(11.9%)
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(13.35%)
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****
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ICT Group (NASDAQ:ICTG)
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(15.4%)
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(30.65%)
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****
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Data from Motley Fool CAPS as of May 22.
As the chart shows, these stocks are all still very well-regarded by the CAPS community despite their underperformance over the past month. While these are not formal recommendations, they could be a great place to kick off some further research. I'll even get you started with some thoughts on ProCentury.
A question of risk
If you face a major financial risk, there's a good chance that you can find an insurer willing to take some of that risk off your hands. Whether it's a car accident, a hurricane, or even death, at least some financial solace can be found for most of life's major mishaps.
Many types of risks, particularly those that businesses take on, do not work well with the one-size-fits-most approach that works for standard lines like life or car insurance. That's where insurers like ProCentury step in. ProCentury is a niche property and casualty insurer covering small and midsize businesses such as day care facilities, retail stores, and fitness centers on risks outside those covered by mainline insurers.
Investors let the company know they weren't happy with its recent earnings announcement by cutting the price on the stock 15%. Though earnings per share met Wall Street's expectations, up 14% year over year, revenue fell short. In particular, gross premiums for the quarter were up just 1% year over year, and net premiums declined slightly.
ProCentury's CEO attributed the slow premium growth to competition, along with tightened underwriting standards on an underperforming program. The competition is worrisome, but it might be encouraging that the company is more willing to show slow growth than try to undercut competitive pricing.
Profitability for the quarter was salvaged by strong growth in investment income and a slightly lower combined ratio -- the percentage of earned premiums spent on losses and operating expenses.
CAPS players seem to see the recent dip as a good opportunity to take a look at ProCentury shares. Damondicus said the company's "excellent fundamentals and long-term growth make this pick easy." Prior to the quarter, CAPS All-Star adprintz saw "very solid fundamentals across the board on [ProCentury]." He added that "I love a lot of the insurers right now because they are cheap compared to historical values."
Is ProCentury done shedding value and ready to take off? Let the community know what you think -- head over to CAPS and share your thoughts with the other 29,000 players currently part of the community. Even if you'd prefer to pass on ProCentury, you can check out a couple of the other stocks listed above, or any of the 4,500 stocks rated on CAPS.
For more CAPS coverage:
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Fool contributor Matt Koppenheffer does not own shares of any of the companies mentioned. You can check out Matt's CAPS portfolio here, or tune into his CAPS blog here. The Fool's disclosure policy taught Mims what it means to be hot.
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