I am always looking for a good deal, whether that means buying an extra box of Golden Grahams 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 (no relation to the cereal) tells us, by way of allegory, how we can look out for these situations.
In The Intelligent Investor, Graham introduces readers to a wacky chap 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 inconsolably 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:
|
Stock
|
30-Day Price Change
|
One-Year Return
|
Current CAPS Rating
|
|
Suntech Power (NYSE: STP )
|
(48.2%)
|
(88.8%)
|
****
|
|
Diana Shipping (NYSE: DSX )
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(42%)
|
(61.8%)
|
****
|
|
ReneSola
|
(40.3%)
|
NA
|
****
|
|
Leucadia National (NYSE: LUK )
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(27.8%)
|
(62.2%)
|
*****
|
|
Stryker (NYSE: SYK )
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(21%)
|
(45.7%)
|
*****
|
|
GigaMedia (Nasdaq: GIGM )
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(19.7%)
|
(75.3%)
|
*****
|
|
Altria Group (NYSE: MO )
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(17.8%)
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(24.7%)
|
*****
|
Data from Motley Fool CAPS as of Nov. 25.
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 to kick off some further research. I'll even get you started with some thoughts on Leucadia National.
Why so blue?
Leucadia has often been referred to as a mini-Berkshire Hathaway (NYSE: BRK-A ) (NYSE: BRK-B ) . This isn't because the two share an insurance heritage -- Leucadia doesn't have any insurance operations -- nor is it because Warren Buffett has anything to do with Leucadia. Rather, the two companies share common philosophies like a steady focus on efficient capital allocation and communicating clearly with investors.
Also like Berkshire, a significant component of Leucadia's business is investing in publicly held securities -- holdings that currently include major chunks of Jefferies Group and AmeriCredit. While Leucadia's managers have shown themselves to be top-flight investors over the past 30 years, they haven't been immune to the market's declines, and investors have likely been marking down Leucadia's stock as holdings like Jefferies and AmeriCredit tumble.
What the bulls say
Though basketball players haven't always delivered after being dubbed "the next Michael Jordan" (does anyone remember Harold Miner?), it's still quite a compliment to be compared to the best of the best. The investment-world equivalent of this comparison would most certainly be drawing a parallel to either Warren Buffett or Berkshire Hathaway -- exactly what many investors have done with Leucadia.
And the comparison isn't without warrant. Though the performance at Leucadia hasn't quite hit the Berkshire level, according to its most recent shareholder letter, the company has racked up a very Berkshire-esque 21.4% CAGR (compound annual growth rate) on its book value-per-share between 1979 and 2007.
If current stock prices for holdings like Jefferies and AmeriCredit hold, it seems very possible that the company could report a year-over-year reduction in book value, something that hasn't happened all that often in its history. Yet with the company's long-term performance and the stock's current discount to the last reported book value, CAPS members have stayed very positive on the stock. rlloydevans, one of the 758 Leucadia bulls on CAPS, recently gave the stocks a thumbs-up, commenting:
LUK has a great balance sheet and is selling at 50% of book value. This quasi-Berkshire Hathaway clone is well set to use its cash for value purchases. Little down side but an awesome medium and long-term upside.
So do you think the recent drop has created a good buying opportunity? Or will Leucadia's equity holdings continue to struggle? Let the community know what you think -- head over to CAPS and share your thoughts with the other 120,000-plus players currently part of the community. Even if you'd prefer to pass on Leucadia, you can check out a couple of the other stocks listed above or any of the nearly 5,400 stocks that are rated on CAPS.
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