I'm 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 he'll 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 received a five-star rating (the highest) by our community of investors just 30 days ago:
|
Stock
|
30-Day Return
|
1-Year Return
|
Current CAPS Rating
|
|
GigaMedia (Nasdaq: GIGM )
|
(21.1%)
|
(41.4%)
|
*****
|
|
Huaneng Power (NYSE: HNP )
|
(12.2%)
|
(18.3%)
|
*****
|
|
Ensco International (NYSE: ESV )
|
(8.7%)
|
49.4%
|
*****
|
|
AgFeed Industries (Nasdaq: FEED )
|
(7%)
|
205.9%
|
*****
|
|
TBS International
|
(5.4%)
|
(5.1%)
|
*****
|
|
Sigma Designs (Nasdaq: SIGM )
|
(4.6%)
|
20.1%
|
*****
|
|
Trinity Industries
|
(4.6%)
|
24.8%
|
*****
|
Data from Motley Fool CAPS as of Dec. 29.
As the table shows, most of 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 GigaMedia.
Why so blue?
For GigaMedia, the sad face is all about the company's recent earnings announcement. Earlier this month, the company delivered its fiscal second- and third-quarter results, and the numbers were anything but encouraging.
Third-quarter revenue fell 19% from the prior year, while $5.8 million in 2008 operating income turned into a $3.3 million operating loss. The $0.04 third-quarter loss per share that GigaMedia reported also fell far short of what analysts were expecting.
The company chalked the soft performance largely up to competition and the poor economy. Worryingly, while the economy may be on the mend, competition in the industry isn't going away. Online gaming is quickly becoming a crowded space, with rivals including Sohu.com (Nasdaq: SOHU ) and Shanda Interactive (Nasdaq: SNDA ) . GigaMedia investors should expect that the company will continue to have to slug it out in the trenches if it hopes to swing back to growth and profitability.
What the bulls say
Despite these poor results, the CAPS community has continued to stand behind GigaMedia. The company's strong balance sheet has many CAPS members flocking to the stock.
At the end of the third quarter, the company had $73.9 million in net cash, and it was waiting on a $100 million payout for the sale of a stake in its online gambling software business. With a current market cap of just $175 million, that means that investors may not be paying all that much for GigaMedia's operating business.
CAPS member bobbyabull pointed out exactly this when giving the stock a thumbs-up earlier this month:
...with $4 per share in cash/ investments you're getting ANY earnings from ongoing business operations for free (actually at a discount) here. All the news has been awful lately; it's at times like this that it pays to remember that nothing goes down forever. This could be a double or triple from these levels if you've got a year or two's worth of patience. They've got a lot of money-all they have to do is figure out how to put it to work.
Do you think the recent drop has created a good buying opportunity? Or will GigaMedia continue to struggle? Let the community know what you think. Head over to CAPS and share your thoughts with the other 145,000 members. Even if you'd prefer to pass on GigaMedia, 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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