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 it's 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, offering 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, offering you premium prices for your holdings. 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.
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
(Out of 5)
|
|
IXYS
|
(18.9%)
|
(46.2%)
|
*****
|
|
Sabine Royalty Trust (NYSE: SBR )
|
(14.7%)
|
(33.0%)
|
*****
|
|
Integral Systems
|
(11.4%)
|
(73.0%)
|
*****
|
|
Somanetics
|
(10.5%)
|
(43.4%)
|
*****
|
|
IRIS International
|
(7.8%)
|
(44.6%)
|
*****
|
|
Nintendo (OTC: NTDOY.PK)
|
(5.9%)
|
(45.9%)
|
*****
|
|
Repligen (Nasdaq: RGEN )
|
(5.7%)
|
(4.6%)
|
*****
|
Data from Motley Fool CAPS as of Aug. 11, 2009.
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 further research. I'll even get you started with some thoughts on Nintendo.
Why so blue?
So what the heck is up with the video game industry? The recession has locked down consumer spending ... which could potentially drive consumers toward video games and other living-room-based forms of entertainment.
Recent earnings seemed to tell more of the former story than the latter. Activision Blizzard (Nasdaq: ATVI ) posted a profit, but thanks to its 2007 merger, today's numbers are hard to compare with the past. The results at Electronic Arts (Nasdaq: ERTS ) , though better than expectations, were clearly lousy. Take-Two Interactive (Nasdaq: TTWO ) doesn't report until the end of the month, but it's expected to report a substantial loss.
And then we come to Nintendo. Though sales of the Nintendo DS were up from last year, unit sales of the Wii fell 60%, leading to a profit drop that surpassed analysts' expectations. And times could get tougher for the scrappy Wii system; Microsoft (Nasdaq: MSFT ) has been working on an add-on to its Xbox 360 system that will compete head to head with the Wii's motion controls.
What the bulls say
CAPS members would likely sum up the Nintendo situation as: "Pessimism be damned." The stock has more than 2,000 outperform votes against a measly 38 underperform votes, giving it a perfect five-star rating.
CAPS All-Star TLStockPicks came out strongly in favor of Nintendo in late June, saying:
There are more non-serious gamers than serious gamers, and Nintendo has successfully captured the attention of the former crowd, (re)introducing to them the fun of videogames. I'm greenthumbing this due to my faith in Nintendo in the future: even though Xbox and PS3 are now dragging along with their new motion sensors, the next generation of those systems will likely again be at a higher price point than Nintendo's next generation due to their focus on technology and graphics. Having built a legendary brand name in Wii with a focus on family/group fun, I can see their next product, especially at the lower price point, being another huge hit.
But here's the important question: Do you think the recent drop has created a good buying opportunity? Or are there too many challenges on Nintendo's horizon? Head over to CAPS and share your thoughts with the other 135,000 members currently part of the community. Even if you'd prefer to pass on Nintendo, 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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