"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 -- and whether you should buy 'em:
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Companies
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Recent Price
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CAPS Rating
(out of 5)
|
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Exide Technologies (Nasdaq: XIDE )
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$5.37
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*****
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Genesis Lease
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$7.79
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****
|
|
Wonder Auto Technology (Nasdaq: WATG )
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$8.91
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****
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GMX Resources (Nasdaq: GMXR )
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$9.54
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****
|
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AMAG Pharmaceuticals
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$38.41
|
**
|
Companies are selected from the "Institutional Ownership Down Last Month" list published on MSN Money after close of trading on Friday. Recent price provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.
Up on Wall Street, the pinstripe-and-wingtip crowd can't sell these stocks fast enough. Down here on Main Street, though ... yeah, we're happy to take that trade. With one notable exception (AMAG), Fools seem optimistic that these dogs of the Dow (and the Nasdaq) are going to pull through just fine.
And optimism is running at full charge for battery maker Exide. Why? That's what we aim to find out, as we dive into ...
The bull case for Exide Technologies
CAPS All-Star kevinottofro recently highlighted the stock's "low relative PE, good ... 2010 earnings" as attracting his interest. A few months before that, it was WPThatcher praising Exide as: "Low-tech, not sexy at all, but profitable in a space that is going to get bigger. Very cheap on a P/S basis."
What about bigger macroeconomic trends?
CAPS member weaverb9 has us covered on that one as well: "The coming electric revolution will need batteries, and even if this company isn't the one making the new tech batteries, they will have at least two benefits: 1) They already have a relationship with vehicle manufacturers, and 2) They can buy battery tech startups."
Exide -- it's electric!
So there's a lot of excitement surrounding Exide. But does the stock deserve it?
I'm not so sure. You see, while WPThatcher's right about the price-to-sales ratio being low (Exide sells for just 0.15 times its annual sales), this P/S may be low for good reason. That reason being -- that contrary to kevinottofro's assertion about the P/E being "low," Exide currently is not, in fact, profitable over the last 12 months in aggregate. However, in its most recently reported quarter, it did post a nearly $10 million profit.
Exide lost more than $116 million in the last four quarters, and nearly $70 million in the prior full fiscal year -- in fact, Exide's lost money in three of the last four fiscal years. (And yes, burned cash in three out of four as well.) And while it's true that analysts have Exide pegged for profitability in fiscal 2011, I'm not so sure that will happen.
One of the company's big accomplishments in recent weeks was landing a contract to provide batteries for the "Highlander" SUV. Of course, the Highlander is made by Toyota (NYSE: TM ) , not the most reliable source of sales these days. And while it's true that Exide has plenty of other customers in its stable -- Ford (NYSE: F ) , BMW, and Deere (NYSE: DE ) -- it also just lost a major customer in the form of Wal-Mart (NYSE: WMT ) .
Foolish takeaway
At the risk of stating the obvious, gaining a Toyota contract while losing a Wal-Mart deal is not a profitable trade for Exide. More importantly, these two events threaten the revival in profit that Wall Street is expecting of Exide next year.
Put it all together, and ... I hate to say this, but it's true: Wall Street's right to be fearful of Exide Technologies today. You should be, too.
Time to chime in
Of course, that's just my opinion, and maybe you think I'm overstating the case against Exide? If that's so, then here's your chance to set me straight. Click over to Motley Fool CAPS now, and tell us why Exide's actually a buy.)
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