With all the volatility in the markets today, there's no shortage of market seers attempting to call a bottom. Ben Bernanke called a bottom not once, but twice. Heck, even Keanu Reeves laid out what a world-ending market bottom looks like.
Investors should consider buying stocks after a big decline, when pessimism has unduly beaten good companies down to great prices. That's why we here at the Fool -- and 140,000-plus investors like us -- look to the Motley Fool CAPS community to help sniff out the real opportunities from languishing companies driven by speculation.
A real bottom or another leg down?
Of course, there's no foolproof method for timing a market bottom. But CAPS has a great balance of both quantitative and qualitative resources available on 5,300 stocks, and even a nifty stock screening tool to help investors quickly zero in on potential investment opportunities. Once we've rounded up our candidates, we can use all the information in CAPS to test whether each company has already hit bottom or simply primed shareholders for further pain.
I've used the CAPS screener to filter out $100 million-plus companies that have seen their stock price appreciate by at least 15% in the past 13 weeks even while they remain at least 40% below their 52-week high. These stocks also have both a positive return on equity and earnings per share over the past 12 months; these criteria limit the results to companies that have a history of delivering results regardless of stock gyrations. If you'd like, run this screen yourself -- just keep in mind that results may change as the market does.
|
Company
|
CAPS Rating
(out of 5)
|
13-Week
Price Change
|
% Below 52-Week High
|
|
Eagle Rock Energy
|
*****
|
31.8%
|
68.0%
|
|
Danaos (NYSE: DAC )
|
****
|
76.0%
|
68.2%
|
|
Mosaic (NYSE: MOS )
|
****
|
16.8%
|
44.7%
|
|
NCR
|
***
|
16.3%
|
41.8%
|
|
SunPower (Nasdaq: SPWRA )
|
***
|
16.1%
|
66.4%
|
Source: Motley Fool CAPS. Price changes for the 13 and 52 weeks ended Sept. 18.
The bottom case
There are several good reasons Mosaic may prove to be a fertile investment today. With the world population expected to grow rapidly over the next decade, it's hard to see a scenario in which the demand for fertilizers doesn't expand significantly. As farmers look to boost crop yields to meet rising demand, potash and fertilizer producers such as Agrium (NYSE: AGU ) , Mosaic, and Terra Industries (NYSE: TRA ) will reap the rewards. Despite the turmoil the industry faced from the economic crisis, Mosaic has pulled in positive free cash flow over the past 12 months -- yet many CAPS members still think shares are attractively priced, given its performance and growth potential.
Or dead cat in disguise?
Even though Mosaic may look spry, some investors have a different outlook for fertilizers and agriculture. A late crop harvest and weaker farm income have many farmers still holding back on spending, and this may be the new normal in agriculture -- not just a short-term reaction that is due to snap back strongly, as some envision. The delay is creating a shorter timeframe for fertilizer applications, resulting in weaker potash demand that may go beyond this season. The weak agriculture outlook prompted Citigroup to downgrade both Mosaic and PotashCorp (NYSE: POT ) recently, following a JPMorgan downgrade of Deere (NYSE: DE ) . And some are expecting potash prices to display further weakness, especially as Chinese buyers are exploiting the environment of weak demand and holding out for a discounted price on contracts after India scored a discount in July.
What's your call?
Overall, 96.2% of the 2,568 CAPS members rating Mosaic are bullish and see it outperforming the broader market. For my part, I see more volatility ahead for fertilizer companies, and would consider only a long-term play in Mosaic.
But what ultimately counts is your own opinion -- CAPS is just there to help you form it. The best part is that the Motley Fool CAPS database is all free, and you can even add your own insight on any of the 5,300 stocks that our 140,000-plus members have covered -- whether it's related to fertilizer or not.
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