With all the volatility in the markets today, there's no shortage of market seers trying to call a bottom. Man of the Year 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 145,000-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 more than 5,300 stocks, and even a nifty stock screening tool to help investors quickly zero in on potential 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 whose stock price has appreciated by at least 15% in the past 13 weeks even while they remain less than 35% above their 52-week low.
|
Company
|
CAPS Rating
(out of 5)
|
13-Week
Price Change
|
% Above 52-week Low
|
|
Granite Construction (NYSE: GVA )
|
****
|
16.6%
|
27%
|
|
Hess
|
****
|
17.2%
|
31%
|
|
Tanzanian Royalty Exploration
|
**
|
30.2%
|
34.1%
|
Source: Motley Fool CAPS. Results from Oct. 2 through Dec. 28.
The bottom case
Though its stock trades at the same level it did two years ago, there are several reasons why Granite Construction may be looking at brighter days. While construction activity can be quite cyclical, some investors expect new and existing projects to pick up in the next several years, with government stimulus money helping to provide the spark. For its part, Granite Construction picked up about $730 million in new business in the third quarter and finished with a $1.6 billion backlog, and some CAPS members write that the company is in a good position to compete for more work.
Granite Construction is also conservatively financed, with a relatively low debt-to-equity ratio, and sits on about $400 million in cash and short-term investments. Although housing may recover slowly, with homebuilders like Beazer Homes (NYSE: BZH ) , Hovnanian (NYSE: HOV ) , and Pulte Homes (NYSE: PHM ) still looking for a rebound, companies like Granite Construction, Jacobs Engineering (NYSE: JEC ) , and Aecom Technology are expected to benefit in 2010 when a large portion of stimulus funds will become available, causing an increase in public works projects. A report by research company McGraw-Hill Construction forecasts that public construction, which counts for a large portion of Granite Construction's revenue, will grow by 14% in 2010. And the company is looking to pursue large, higher-margin projects.
Or dead cat in disguise?
Even though some trends are working in Granite Construction's favor, the environment for construction-related companies is still challenging, as recent earnings reports from Jacobs Engineering, Fluor (NYSE: FLR ) , and Foster Wheeler (Nasdaq: FWLT ) have shown. Granite Construction reported a 40% drop in third-quarter earnings and a 20% decline in revenue, and although its long-term outlook may be good, one Goldman Sachs analyst expects the next several quarters to be rough and favors energy-related infrastructure companies instead. Companies in the residential and commercial sectors have been driven to compete for public projects, resulting in many more bidders on projects, and this extra competition could hamper margins for Granite Construction and slow its potential recovery.
What's your call?
Overall, 94% of the 277 CAPS members rating Granite Construction see it outperforming the broader market. For my part, I side with the bears -- not that it's a poor company or investment -- because I believe there may be more buying opportunities in the future, with even cheaper shares possible.
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 145,000-plus members have covered.
RSS Headlines
Fool UK