I am 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 to offer 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 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.
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:
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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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Bolt Technology (AMEX:BTJ)
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(31.7%)
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185.7%
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****
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Hardinge (:HDNG)
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(30.7%)
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83.5%
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*****
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Parker Drilling (:PKD)
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(30%)
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23.2%
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*****
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SRS Labs (NASDAQ:SRSL)
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(29.7%)
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64.9%
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*****
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General Cable (NYSE:BGC)
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(29%)
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63.1%
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****
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JAKKS Pacific (NASDAQ:JAKK)
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(27.9%)
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40.4%
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****
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Qiao Xing Universal Telephone (NASDAQ:XING)
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(26.9%)
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(0.2%)
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*****
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Data from Motley Fool CAPS as of Aug. 14, 2007.
As the table 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 from which to kick off further research. I'll even get you started with some thoughts on JAKKS Pacific.
My two wishes
There's not all that much that I want out of life, but one thing that I'd really like is an Andre the Giant action figure. What's that, you say? I can get one from JAKKS Pacific through its licensing partnership with the WWE? Well, then, I guess all I need now is a good stock selling at a cheap price.
If I take a cue from 248 of the 259 CAPS members who have rated the stock, JAKKS may be the answer to my second wish as well.
JAKKS is a toy maker and works with a number of very recognizable brands, such as WWE, Dragon Ball Z, Rocky, Pokemon, and SpongeBob SquarePants. The recent trouble started when the company announced its second-quarter results. Although the company said it is well-positioned for the second half of the year and confirmed its full-year outlook, earnings for the second quarter fell from the prior year and were short of what Wall Street expected. Investors weren't exactly tickled and drove the stock down 15% the day of the earnings release.
It hasn't been a walk in the park for JAKKS since then, either. Competitor and toy superpower Mattel recalled toys (twice!) made in China because of lead-paint concerns. This has likely left investors wondering whether there is the potential for a similar event at JAKKS or other major toy makers.
Recent lumps aside, the company has been a solid grower over the past few years and has delivered steady profit margins. At this point, Wall Street analysts -- who, at least before the most recent quarter, seemed to underestimate the company -- think that JAKKS could continue to grow a bit above 10% per year for the next five years. Best of all, based on management's estimates of 2007 earnings, the stock can currently be bought at a price-to-earnings multiple of just over 9.
One of CAPS' top players, tenmiles, gave JAKKS the green-thumb-up back in late July after the earnings call. Tenmiles suggests "[using the] sell-off to start building a position in JAKKS ... the company offers relatively attractive value [opportunity] at these levels."
So did the stock's price drop create a good buying opportunity? Or was the second-quarter disappointment a sign of things to come? Let the community know what you think -- head over to CAPS and share your thoughts with the 60,000-plus players. Even if you'd prefer to pass on JAKKS, you can check out a couple of the other stocks listed above or any of the 4,900 stocks that are rated on CAPS.
More CAPS Foolishness:
If you are still looking for a terrific deal, you can take a 30-day free trial of the Motley Fool Inside Value newsletter and see what companies we recommend at great prices.
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 loves toys as much as the next disclosure policy, but doesn't play around when it comes to telling you the truth.
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