"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:
|
Stock |
Recent Price |
(out of 5) |
|---|---|---|
|
Nokia |
$10.66 |
**** |
|
Electro-Optical Sciences |
$6.51 |
*** |
|
Green Mountain Coffee |
$72.16 |
* |
Companies are selected from the "Institutional Ownership Down Last Month" list published on MSN Money after close of trading on Thursday. Recent price provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.
Wall Street vs. Main Street
Up on Wall Street, the pinstripes-and-wingtips people are unloading these stocks just as fast as they can? Down here on Main Street, though, each of these companies still has its fans.
For example, CAPS All-Star BeRadBee sees Green Mountain as a potential target for acquisition by Starbucks
But absent a stock-saving buyout, are either of these stocks truly the best places to put your money? The consensus opinion on CAPS remains muted on Electro-Optical, while based on its single, solitary star, it seems most Fools are profoundly put off by Green Mountain's over-caffeinated stock price. Fact is, there's only one company on today's list that truly trips the trigger of CAPS investors, and that's ...
Nokia
Refusing to place his hopes in an acquisition, CAPS member davidinmaine thinks Nokia will do just fine for investors, all on its own. After all, the stock's "undervalued and pays good dividend."
BJames40 agrees, adding that Nokia boasts "great market share, especially in EM." (Meaning, I presume, emerging markets.)
Topping it all off, Psyq believes that Nokia's "Cash in hand" and "healthy balance sheet" make this company a survivor.
Ring, ring -- anybody want to answer that?
Can anyone -- even Nokia -- be expected to survive a combined onslaught by Apple's
It's a fair question to ask. A valid concern, in light of Nokia's precipitous decline from years past. Just over two years ago, Nokia was reporting $10.5 billion in annual earnings. Its most recent earnings report, in contrast, shows Nokia to have become a mere shadow of its former self. The company's trailing earnings of just $1.5 billion amount to barely 14% of what Nokia used to earn. Or ... do they?
GAAP-calculated earnings are all well and good, but when placing my hard-earned cash on the line, I like to focus on something a bit more substantial. Namely, the amount of actual cash a company generates from its business: its free cash flow.
In Nokia's case, this amounts to a less-impressive-than-in-years-past, yet still substantial, $4.6 billion for the trailing-12-month period. And when we match that up against the company's $41.6 billion market cap, what we find here is a company undeniably down on its luck, but far from "out."
Foolish takeaway
Trading for a mere nine times free cash flow, yet expected by most analysts on Wall Street to grow at better than 10% per year over the next five years, Nokia looks like a particularly good value to me, today. And as for the question of how long we must wait to see Nokia find its footing, and regain the ground it's lost, well ... so long as Nokia is offering you a 4.5% dividend while you wait, I can only conclude:
With Nokia, patience is a virtue.
Disagree? Feel free. If you've got a less favorable view of Nokia, click on over to Motley Fool CAPS right now, and tell me why I'm wrong.
Nokia's stock has lagged the market badly over the past year. How do you tell a bargain stock from a value trap? Find out here.
