"We simply attempt to be fearful when others are greedy
and to be greedy only when others are fearful."
-- Warren Buffett
Of all the Oracle of Omaha's orations, this one holds a special place in Foolish investors' hearts. When looking to bag a bargain, a panicked sell-off by jittery investors offers you a great chance to snap up stocks on the cheap.
In the short term, professional traders' pessimism can become a self-fulfilling prophecy. Desperate institutions lower their asking prices to get rid of a stock, prompting buyers' bid prices to fall in tandem, creating the very price decline that both sides feared in the first place -- until the selling stops.
Until it does, savvy investors can "get greedy," snapping up bargains from these fearful sellers. (Assuming they really are bargains.) In today's column, we'll see which stocks Wall Street's motivated sellers are most frantic to unload. Once we've compiled this shopping list of potential contrarian picks, we'll check them against the collective intelligence of Motley Fool CAPS.
Today's contenders:
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Recent Price
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CAPS Rating
(5 max):
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Excel Maritime (NYSE: EXM )
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$37.62
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****
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DryShips (Nasdaq: DRYS )
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$73.74
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**
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Beazer Homes (NYSE: BZH )
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$ 5.49
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*
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American Axle
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$14.00
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*
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Fifth Third Bancorp (Nasdaq: FITB )
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$13.17
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*
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Companies are selected from the "Institutional Ownership Down Last Month" list published on MSN Money on the Saturday following close of trading last week. Recent price provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.
Today's list includes one struggling Midwest bank, one strike-plagued auto parts maker, and a homebuilder, so there's few surprises down at the bottom end of the popularity scale. Only slightly less hated than these three is dry bulk shipper DryShips -- long a scary stock.
But what do we have here? The favorite of the five is ... also a dry bulk shipper. Could it be that not all shipping stocks are created equal? Let's find out why investors think Excel Maritime is more shipshape than DryShips as we examine ...
The bull case for Excel Maritime
- CAPS All-Star synergize introduces us to the company: "Excel Maritime Carriers Ltd. … is a shipping company specializing in the world-wide seaborne transportation of dry bulk cargoes ... including ... iron ore, coal and grain ... steel products, fertilizers, cement, bauxite, sugar and scrap metal... Excel’s fleet is managed by one of its wholly owned subsidiaries, Maryville Maritime Inc... As of May 15, 2008, it [operated] a fleet of ... 47 vessels ... with a total carrying capacity of approximately 3.7 million deadweight."
- HutchinFool tells us that: "Dry bulk shippers are staying busy, and this one is well run, has a low P/E and brings good returns to its stockholders on a regular basis."
- And just what is it that is keeping the shippers so busy? swingtrader930 explains: "Demand for shipping services will continue as demand for coal, FERTILIZER, grains and other goods to [developing] countries continues."
Basically, our CAPS players are painting Excel as a macroplay on rising global demand for commodities. With the stock up some 25 times in value over the last five years, that's been a very smart bet so far. And if the commodities boom continues, it could remain smart for years to come. Customers like Bunge (NYSE: BG ) and BHP Billiton (NYSE: BHP ) depend on Excel to move their products to market, and so long as they're doing well, Excel should, too.
The stock certainly looks cheap enough: It trades for less than seven times trailing earnings. But a couple of factors argue against Excel. First, even at this valuation, it's far from the cheapest shipper on the block. DryShips and Navios (NYSE: NM ) sell for less than five times and four times earnings, respectively. Also worth noting is that analysts forecast only 3% profits growth for Excel next year, and don't even hazard a guess at a five-year trend. The 3% projection, however, suggests that we may be approaching a cyclical peak in shipping.
Time to chime in
So is Excel Maritime sailing over a waterfall, or will it successfully navigate the rapids of a weakening global economy? Come on over to Motley Fool CAPS and tell us what you think.
Motley Fool CAPS: It's fun, it's free, and it just might make you famous.
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