"Don't catch a falling knife," as the old saw commands. (Pardon my mixing a cutlery metaphor.) The idea of buying a former superstar stock at a discount price certainly has its attractions, but you've got to make sure you catch the haft -- not the blade. That's where Motley Fool CAPS comes in.
Today, we once again stand beneath Mr. Market's silverware drawer, measuring which knives have fallen furthest. Then we'll call on CAPS to ask which of these stocks -- if any -- Foolish investors believe are ready for a rebound. Let's meet today's list of contenders, drawn from the latest "52-Week Lows" list at WSJ.com:
|
Company
|
52-Week High
|
Recent Price
|
CAPS Rating
(out of 5)
|
|
Monsanto (NYSE: MON )
|
$93.35
|
$66.75
|
****
|
|
PPL Corp. (NYSE: PPL )
|
$34.42
|
$27.40
|
***
|
|
Value Line (Nasdaq: VALU )
|
$36.52
|
$24.90
|
***
|
|
Student Loan Corp. (NYSE: STU )
|
$54.59
|
$31.59
|
*
|
Companies are selected from the "New Highs & Lows" lists published on WSJ.com on Thursday and Friday last week. 52-week high, recent price, and CAPS ratings from Motley Fool CAPS.
Huh? Stocks go down, too?
Mr. Market sounded a wake-up call last week, as fears of an SEC-led witch hunt against Goldman Sachs reminded investors that stocks can go down as well as up (and fast!). Sure, none of the stocks named above got hit by anything like the 13% tumble that tripped up Goldman Friday. Yet their death-by-a-thousand-cuts declines over the past year have left each touching bottom at a new 52-week low.
But are any of these "hard bottoms?" Fools seem hesitant to invest in the heavily indebted PPL and (especially) Student Loan Corp. They're not even so hot on the prospects for profitable and cash-rich (but declining-as-a-business) Value Line. One company Fools do believe has potential bounce-ability, however, is seed and chemicals giant Monsanto, winner of an above-average four-star rating on CAPS.
Let's find out why.
The bull case for Monsanto
CAPS member sjf2005 exclaims: "Monsanto is a HUGE, HUGE value play right now. It's being punished right now in part because of lawsuits brought by Dupont (NYSE: DD ) and an investigation by the DOJ and the DOA. ... One often overlooked point from a value perspective, however, is MON's 1.54% dividend ... With a 37.14% payout ratio, it's both safe and has plenty of room to grow ..."
WiseChoice4u2 agrees: "Just bad publicity won't keep this stock down. Food production will continue to be a long term issue. The world population will triple in my life time ..." And as CAPS All-Star latimerburned points out, the problem of more mouths to feed is being exacerbated by: "the migration from farming accross the world. That means we need to produce more from less. Enter Monsanto."
Monsanto: Green thumb or red ticker?
But should you enter -- a buy order for Monsanto stock, that is? That's the real question.
As for the answer ... well, let's see what the numbers tell us. Right off the bat, we see Monsanto trading for 27 times earnings. That's hardly an obvious bargain, even without adding the risk of federal investigations and private litigation to the mix. Nor do we find any better news on the cash flow statement, where Monsanto has harvested a meager cash crop over the past 12 months -- less than $200 million in free cash flow versus GAAP reported "earnings" in excess of $1.3 billion.
As bad as that sounds, though, I'd argue the true situation with Monsanto is even worse. Dig a little deeper into this company's financials and you'll see that over the past five years Monsanto generated something on the order of $1.2 billion in free cash flow, annually. Those were years in which Monsanto both suffered from the Crash, but also profited from the same pre-Crash boom in agricultural commodities that benefitted fellow agro-boom darlings like PotashCorp (NYSE: POT ) and Mosaic (NYSE: MOS ) . Compare this number to the market cap, and we find Monsanto is actually trading for close to a 30-times multiple to its long-term free cash flow.
Foolish takeaway
In other words, as expensive as the P/E ratio makes this company look, it's actually even more overvalued than it seems. Which is why, even with analysts projecting 15% long-term earnings growth for the company, I do not see Monsanto bouncing back anytime soon. To the contrary, I believe this stock has even further to fall.
Of course, that's just my opinion. If you disagree, and if you're inclined to run with the bulls on this one, then here's your chance to set me straight. Click over to Motley Fool CAPS now, and tell me why you think this particular beanstalk's bound to grow.
RSS Headlines
Fool UK