Contrarian Investors' Dream Stocks

Investors are always hunting for the next big stock -- the dream stock whose price increases several-fold when the market finally discovers it. While plenty of online tools help investors screen the markets and find stock ideas, few also give all the resources necessary to evaluate tomorrow's greatest companies.

But one tool offers a variety of resources to help with investing decisions: Motley Fool CAPS.

We'll enlist CAPS to not only screen for top contrarian stocks -- those combining strong fundamentals with pessimistic sentiment -- but also get the story behind them. We'll use CAPS' nifty screener to find stocks with:

  • A market cap of at least $500 million;
  • A long term debt-to-equity ratio of less than 0.5;
  • A share price at least 50% below its 12-month high;
  • An earnings-per-share growth rate of at least 15% over the past three years;
  • A price-to-earnings ratio of less than 25.

Then we'll tap the collective intelligence of our 105,000-plus CAPS investors to see whether these companies present real opportunities -- or whether the numbers don't tell the true story.

Opinions with the numbers
Here's a sampling from the list of stocks our screen pulled up today.


% Below 12-month High

CAPS Rating (out of 5)

The9 Limited (Nasdaq: NCTY  )



Garmin (Nasdaq: GRMN  )






Aluminum Corp. of China (NYSE: ACH  )



Titanium Metals (NYSE: TIE  )



Data and star rankings from CAPS. All data as of June 9.

Charting a new course
Navigation device king Garmin has been heading south for several months now, dealing investors a nearly 60% loss since its highs late last year. While this drop has wiped out gains made in the previous year, Garmin is still a big winner for long-term shareholders because the stock has more than doubled in the past five years.

While Garmin didn't live up to expectations in its recent earnings announcement, much of the pessimism surrounding the company lately has more to do with the competition for personal and auto navigation. With TomTom now holding mapping data provider TeleAtlas, and Nokia (NYSE: NOK  ) due to swallow NAVTEQ, investors see Garmin's great margins coming under pressure.

The way I see it, the market has essentially priced Garmin as if it will lose a great many things -- its historic growth rate, its margins, and its lead in various markets for navigation systems. Certainly, there are some operating issues to be concerned about, and TomTom is gunning for Garmin's clamp on the U.S. market, which could escalate price wars between the two. As a longtime shareholder of Garmin stock, it's probably not surprising that I think the market has oversold Garmin. But look at some numbers and opinions in CAPS and see for yourself.

Garmin has grown diluted earnings per share at around 60% annually over the past three years. Few investors expect that amazing number to continue, and analysts have pegged the long-term growth rate at around 18.3%. I think Garmin still has a good chance to outperform this and deliver growth of more than 20%. But even if you believe it will only meet analysts' view, the forward earnings multiple on Garmin today is a mere 12.7, well below the growth expected.

There's also some risk with Garmin's push to launch its Nuviphone later this year. Successfully navigating the very competitive smartphone space may be more difficult than anticipated: Though Apple has made the leap, even mainstays such as Motorola (NYSE: MOT  ) have been summarily punished for reading the market the wrong way.

Even with the risks, many top CAPS investors agree that Garmin is undervalued at current prices. With 5,045 investors rating the company now, more than 95% expect the shares to beat the market.

Let 105,000 investors be the judge
The collective wisdom of a huge pool of investors can really help give context to a page of numbers developed through a stock screen. But even with an entire community of qualified opinions acting as the judge, individual investors are still the jury and should perform their own due diligence.

Want to run your favorite parameters through the CAPS screener? It's totally free, including the extensive investor knowledge base of ratings, commentary, and blogs. You can even give your own opinion -- both good and bad -- on any company you wish in Motley Fool CAPS.

Motley Fool Global Gains is another Foolish resource to help you find promising opportunities beyond our borders. Garmin is a Global Gains recommendation. See what other stocks are helping the international investing service beat the market by eight points for free for 30 days.

Fool contributor Dave Mock dreams of stocks and sugarplum fairies, but not together. He owns shares of Garmin and Motorola and is the author of The Qualcomm Equation. Garmin and Apple are Stock Advisor recommendations. The Fool's disclosure policy screens the good, the bad, and the ugly.

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