"We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful." -- Warren Buffett
Of all the Oracle of Omaha's orations, this one holds a special place in Foolish investors' hearts. When looking to bag a bargain, a panicked sell-off by jittery investors offers you a great chance to snap up stocks on the cheap.
In the short term, professional traders' pessimism can become a self-fulfilling prophecy. Desperate institutions lower their asking prices to get rid of a stock, prompting buyers' bid prices to fall in tandem, creating the very price decline that both sides feared in the first place -- until the selling stops.
Until it does, savvy investors can "get greedy," snapping up bargains from these fearful sellers. (Assuming they really are bargains.) In today's column, we'll see which stocks Wall Street's motivated sellers are most frantic to unload. Once we've compiled this shopping list of potential picks, we'll check them against the collective intelligence of Motley Fool CAPS.
Today's contenders include:
|
Stock
|
Recent Price
|
CAPS Rating
(out of 5)
|
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Melco Crown Entertainment (Nasdaq: MPEL )
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$4.93
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****
|
|
LDK Solar (NYSE: LDK )
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$5.91
|
****
|
|
Affymetrix (Nasdaq: AFFX )
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$5.64
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***
|
|
Microvision (Nasdaq: MVIS )
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$3.89
|
***
|
|
Marshall & Ilsley (NYSE: MI )
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$5.53
|
**
|
Companies are selected from the "Institutional Ownership Down Last Month" list published on MSN Money on the Saturday following close of trading last week. Recent price provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.
In and out, up and down -- what is it with Wall Street and its fickle love for stocks? All five of the companies named above have suffered net selling on the Street over the past month, but it's the top stock on the list, Melco Crown, that jumps out at me. Not because it's one of our faves over at Motley Fool Global Gains, mind you (or not just because of that), but because just a few months ago, Melco Crown was one of Wall Street's favorite stocks. The company topped the Wall Street's Buy List in March.
Well, Wall Street's love of gambling may have changed, but it seems that many Fools' enthusiasm has not.
The bull case for Melco Crown Entertainment
Eight months ago, we cited All-Star Trimalerus' endorsement of Melco Crown: "What do people do when the economy is down and they are depressed? Go Gambling!"
More recently, LoneWolf888 began howling with enthusiasm forMelco: "Chinese owned !! For this reason alone, Chinese day trippers will gamble at the City Of Dreams. ... By all accounts recently Wynn (Nasdaq: WYNN ) is second busiest to the LV Sands (NYSE: LVS ) and Venetian hotels. In fourth place comes [Melco] securing approximately 17% of day trippers ..."
How do you turn a fourth-place market share into a first-class investment? mountain81 offered one theory in June: "In current Chinese business environment, political connections give them 10 times the advantage of other casino owners ... Forget the balance sheet for now. Debt is high but that pays for the new casino, City of Dreams, open(ed?) June 1."
But should you gamble your portfolio on the City of Dreams? mountain81's right, after all, about Melco Crown's heavy debt load. At last report, the company carried $1.8 billion in debt versus about $655 million in cash -- and that's just the beginning.
Back in March, I argued that Melco's 22.5 forward P/E and 8% projected growth rate made this stock a risky bet. Since then, things have only gotten worse. First-half revenue dropped more than 50% year over year, while first-half 2008's tiny profit devolved into a near-$180 million loss for this year's first half. With analysts now projecting a loss for both this full year and the next, Melco Crown no longer has even that "22.5 P/E" to fall back on. Divide negative earnings into Melco Crown's $2.6 billion market cap, and what we have here is a stock valued at infinity-times-earnings. Not good.
Time to chime in
Personally, I wouldn't touch Melco Crown stock with a 10-foot craps rake. But plenty of Fools disagree with me -- not least the global treasure-seekers at Motley Fool Global Gains -- so don't you feel shy about speaking your mind. If you think Melco can overcome its debt burden, prove the earnings skeptics wrong, and "Crown" itself king of profit -- I'll listen to your arguments. Just click on over to Motley Fool CAPS, and tell us what you think.
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