Valuation is an imperfect science, but it's as important a concept to fantasy football players as it is to investors. In my league's Super Bowl showdown, a friend lost to a regular-season 7-6 team that got a strong performance from Arizona's Beanie Wells. The rookie ran 17 times for 68 yards and a score in the Cardinals' 31-10 victory over the St. Louis Rams last week.
Value is value, whether you're assembling a fantasy team or a stock portfolio. But don't take my word for it. "Before you make any decision -- who to draft, trade, start, and sit -- make sure you are following that basic principle; how risky is this move, does it give me the best chance to win?" writes ESPN fantasy analyst Matthew Berry in his annual manifesto.
See the parallels here? Winning fantasy players pick-up unloved players for less than market value, and market-beating investors buy oversold stocks for $0.50 on the dollar.
Waiver-wire heroes, unloved stocks ready to rise
These are the bargain hunters who knew that, despite last year's collapse in energy prices, shares of Continental Resources
More bargains are out there. For this final column of the 2009 NFL season, we'll use the Motley Fool CAPS screener to find the stock market's version of underrated heroes like Wells. Here's what we're looking for:
- A minimum $250 million market cap, because we don't draft unsigned free agents.
- A price-to-earnings (P/E) ratio of less than 12, because we're not interested in players that everyone else loves.
- A 10% or better return on equity (ROE), because we want proof that this stock can play at the level we need it to.
- Returns of no better than 5% over the past year, because we're bargain hunters. (This is a change to account for the market's massive run-up in the wake of the Wall Street Panic 2008.)
Today's screen returned 14 candidates that could be worthy of filling roster spots in your portfolio. These three possess a track record of superior returns on shareholder equity:
|
Company |
52-Week Price Change |
P/E Ratio |
ROE |
|---|---|---|---|
|
RenaissanceRe Holdings |
4.8% |
5.8 |
22.8% |
|
Rent-A-Center |
4.4% |
7.7 |
13.3% |
|
Arch Capital Group |
4.2% |
10.4 |
10.1% |
Source: Motley Fool CAPS screen data.
*Medidata began trading on June 25, 2009.
Of these, I'd pick up RenaissanceRe Holdings, which is more like Berkshire Hathaway's
Reinsurance is more specialized, in that most its revenue comes from insurance for insurers. Thus, when a property insurer suffers massive claims in the wake of a natural disaster, the reinsurers cover the overflow.
The model has its disadvantages. In 2008's third quarter, RenaissanceRe suffered big underwriting losses when its clients paid out damage claims related to hurricanes Ike and Gustav.
RenaissanceRe has since recovered. The company reported a $3.85-per-share operating profit in 2009's third quarter, well above the $2.68 per share analysts had expected. Can the good times continue? Fools think so. Only nine of the past 99 raters of the stock say it will underperform. I agree; 2009 could see RenRe close trading at a P/E below 6. That doesn't seem sustainable.
But that's also just my take. What do you think? Would you give RenRe a spot on your portfolio roster? Let us know by signing up for CAPS today. It's 100% free to participate.
