With all the volatility in the markets today, there's no shortage of market seers attempting 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 5,300 stocks, and even a nifty stock screening tool to help investors quickly zero in on potential investments. 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 for $100 million-plus companies that have seen their stock price appreciate by at least 10% in the past 13 weeks even while they remain less than 40% above their 52-week low.
|
Company
|
CAPS Rating
(out of 5)
|
13-Week
Price Change
|
% Above 52-Week Low
|
|
Valero Energy (NYSE: VLO )
|
*****
|
10.8%
|
25.3%
|
|
USEC (NYSE: USU )
|
*****
|
10.1%
|
32.6%
|
|
CVS Caremark (NYSE: CVS )
|
****
|
10.5%
|
38.7%
|
Source: Motley Fool CAPS. Results from Nov. 6 through Feb. 1.
The bottom case
There's been plenty of bad news coming from refiner Valero lately, but that's precisely why many investors think the worst may be behind the company and the stock is at a bottom looking nowhere but up. The refining environment has been brutal, but Valero managed to narrow its fourth-quarter loss and looks for a return to profitability in 2010. It also expects to continue to benefit from cost cuts as it slims down through asset sales. While it slims down in some areas, though, Valero is moving to diversify its business through various alternative energy sources like ethanol and biofuels. For example, it beat out Archer-Daniels-Midland (NYSE: ADM ) in a bid to acquire seven ethanol plants last year at a huge discount to replacement cost. The company believes it is buying good potential for cheap prices and recently moved to buy three more ethanol plants.
In addition to Valero considering 2009 a possible bottom for refining profitability, one Deutsche Bank analyst sees an improving demand environment in 2010 and accordingly upgraded Valero and peers Frontier Oil (NYSE: FTO ) and Tesoro. Many CAPS members looking long-term agree with this sentiment, saying Valero likely holds great potential at today's prices.
Or dead cat in disguise?
But some investors say, not so fast. Valero may look spry, but refiners still face issues of excess inventory and spare refining capacity that's been a big overhang on margins. While oil prices saw big gains last year, the rise of pump prices lagged behind, leading Valero to shut down several refineries and ultimately look to pawn off a couple of parts of its operation that contributed significantly to cash flow in previous years. The difficult environment is also hitting refining operations of integrated majors like Chevron (NYSE: CVX ) , ConocoPhillips, and ExxonMobil (NYSE: XOM ) , which all posted fourth-quarter losses in their refining businesses, and led Chevron to announce job cuts at some of its refineries. Valero doesn't see a rebound taking place any time soon and slashed its dividend to adjust to the environment and conserve cash, leaving some investors sour on its outlook.
What's your call?
Overall, about 96% of the 4,561 CAPS members rating Valero are bullish and see it outperforming the broader market. For my part, I think it may be early to call the bottom on Valero, and the company will look very different going forward, making it difficult to accurately value the company's prospects.
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.
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