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 Return
|
One-Year Return
|
Current CAPS Rating
|
|
Pharmaceutical Product Development (Nasdaq: PPDI )
|
(17.1%)
|
(52.4%)
|
*****
|
|
Permian Basin Royalty Trust
|
(10.3%)
|
(56.9%)
|
*****
|
|
Becton, Dickinson (NYSE: BDX )
|
(8.2%)
|
(30.3%)
|
****
|
|
Nintendo
|
(5.9%)
|
(52.2%)
|
*****
|
|
Linear Technology (Nasdaq: LLTC )
|
(5.3%)
|
(36.3%)
|
****
|
|
Aqua America (NYSE: WTR )
|
(4.0%)
|
6.8%
|
***
|
|
Johnson & Johnson (NYSE: JNJ )
|
(3.7%)
|
(21.7%)
|
*****
|
Data from Motley Fool CAPS as of April 29.
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 Pharmaceutical Product Development.
Why so blue?
For PPD, the drop in stock price was thanks to a good, old-fashioned earnings miss. Oddly enough, despite the recessionary conditions, we haven't seen all that many first-quarter earnings misses. Or maybe it isn't all that odd; after all, analysts seem to have set the bar so low in some cases that it would be more difficult to limbo under it than step over.
Of course, the low targets were mostly reserved for the finance and retail companies that have been at the center of the economy's swirling toilet bowl. The health-care sector, on the other hand, has been seen as a safe haven, and investors and Wall Street alike have been expecting not only stability, but growth. So when PPD announced 15% earnings per share growth -- a penny shy of analysts' estimates -- investors found reason to be disappointed.
The first-quarter miss wasn't the whole story, though. The company also revealed that its business environment has gotten tougher and necessitated pulling back its 2009 earnings guidance. The midpoint of the new 2009 guidance would have earnings per share flat to slightly down from 2008.
What the bulls say
As the recent drama with Dendreon (Nasdaq: DNDN ) has shown, there is a lot riding on the potential approval of a new drug, so it would make sense to make sure you're doing everything you can during the discovery and development process.
For a company like PPD that works with major pharmaceutical companies like Merck (NYSE: MRK ) to help in the discovery and development of new drugs, it would seem that there is plenty of long-term opportunity, even if the near term is a bit choppy.
There's no question about where the CAPS community stands on the outlook for PPD. Of the 462 members that have weighed in on the stock, 456 of them have given it a thumbs-up. One of these PPD bulls, Ulenspiegel101, chimed in last week with:
Solid 5-star company. Whatever happens, pharmaceutical research will have to keep going. With more public finance, evidence base and cost-benefit analysis will become more important. Bargain after today's drop
So, do you think the recent drop has created a good buying opportunity? Or will it continue to be a laggard while the rest of the market rallies? Let the community know what you think -- head over to CAPS and share your thoughts with the other 130,000 members currently part of the community. Even if you'd prefer to pass on PPD, you can check out a couple of the other stocks listed above, or any of the 5,300 stocks that are rated on CAPS.
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