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.
To find 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)
|
|
Harris & Harris Group (Nasdaq: TINY )
|
(18.5%)
|
(8.2%)
|
*****
|
|
CapitalSource (NYSE: CSE )
|
(12.9%)
|
(62.1%)
|
*****
|
|
Darling International (NYSE: DAR )
|
(12.1%)
|
(15.1%)
|
*****
|
|
Global Industries (Nasdaq: GLBL )
|
(11.9%)
|
88.7%
|
*****
|
|
Weatherford International (NYSE: WFT )
|
(11.5%)
|
15.0%
|
*****
|
|
McDermott International (NYSE: MDR )
|
(8.3%)
|
22.5%
|
*****
|
|
Tata Motors (NYSE: TTM )
|
(5.2%)
|
88.2%
|
*****
|
Source: Motley Fool CAPS as of Oct. 13.
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 Motley Fool Rule Breakers pick Harris & Harris.
Why so blue?
Let's say you and I sit down on a Friday night with a piping-hot pizza. Since you did chip in for the pizza, I agree that you can have three slices. But then I pull a move that leaves you with eyes agape -- I pull out my pizza cutter and turn the standard eight-slice pizza into a 16-slice pie, leaving you confused, angry, and hungry.
The same thing just happened to Harris & Harris investors. The dilution in this case was each investor's ownership percentage. Earlier this month, the company announced the closing of a 4.9 million-share offering, which is a 19% expansion of the shares outstanding. Maybe worse is the fact that the shares were sold at $4.75 each -- about 5% below the market price at the time of the closing.
Of course, savvy investors may realize that as a venture capital company, raising new money through share sales is the way Harris & Harris bolsters its dry powder to be able to make new investments. While the dilution is significant, it will also give the company more than $21 million of new funds to invest.
What the bulls say
Harris & Harris is a clear CAPS favorite, with a perfect five-star rating and 775 outperform ratings. Most CAPS members who weighed in see the stock as a great way to get exposure to the emerging nanotechnology industry.
CAPS member ChrisGraley, who is ranked in the top 1% of all CAPS members, recently joined the Harris & Harris fan club on the belief that the recent share offering is a positive sign for the company:
This is a speculative play. TINY already has 30 promising companies under it's wing. All of the companies are in the fields of nanotechnology, microbiology, biofuels and microchemical battery manufacturing. It has managed its money well, but it's taking a hit today, due to another public offering. Given the way it's managed its money in the past, I have to believe that they are about to acquire another promising venture or one of their current ventures is showing enough promise to require [significant] investment. Either way, I think it's a bullish sign for the company.
But here's the important question: Do you think the recent drop has created a good buying opportunity? Or will tough capital markets and an unforgiving economy make it an uphill battle for the company? Head over to CAPS and share your thoughts with the 140,000 members of the community. Even if you'd prefer to pass on Harris & Harris, 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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