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, though some still argue that the worst is yet to come.
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 165,000-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 5,400 stocks, and even a nifty stock screening tool to help investors quickly zero in on potential investment opportunities.
I've used the CAPS screener to filter out $100 million-plus companies that have seen their stock price appreciate by at least 15% in the past 13 weeks even while they remain at least 25% below their 52-week high.
|
Company
|
CAPS Rating
(out of 5)
|
13-Week
Price Change
|
% Below 52-Week High
|
|
Merge Health Care
|
**
|
53.3%
|
36.2%
|
|
Keryx Biopharmaceuticals (Nasdaq: KERX )
|
**
|
42.7%
|
41.4%
|
|
Applied Energetics (Nasdaq: AERG )
|
*
|
36.3%
|
31.1%
|
Source: Motley Fool CAPS. Results from April 1 through June 28.
Keryx Biopharmaceuticals has given back some gains recently after its stock soared -- possibly based on false hopes -- when its colon cancer drug perifosine received a fast-track designation from the FDA.
Despite Applied Energetics' lower one-star rating, its growing relationship with the U.S. military has a few investors believing it may be able to achieve big success with its esoteric weapon systems.
The bottom case
It's had a long and storied history, but investors cite several reasons why Applied Energetics may be looking nowhere but up today. Some CAPS members like the traction that the company's laser weapons are gaining with the military, especially considering the unconventional war scenarios the U.S. is involved in. Many see potential for commercial success and believe that science-fiction-like laser weapons have a legitimate place in the field as other programs have recently reached some milestones in their development. The Airborne Laser Testbed being worked on by Boeing (NYSE: BA ) , Northrop Gruman (NYSE: NOC ) , and Lockheed Martin (NYSE: LMT ) successfully shot down a boosting ballistic missile earlier this year, prompting calls for more funding for further development. At sea, the Navy recently successfully destroyed an unmanned aerial vehicle with a laser weapon system adapted for use with Raytheon's (NYSE: RTN ) Phalanx ship defense system. And Boeing is working on a truck-mounted laser weapon using components from L-3 Communications (NYSE: LLL ) .
For its part, Applied Energetics has continued to gain support from the military for development of its weapons. It scored a $10.4 million deal with the U.S. Marines in January to continue work on its Counter-IED program, and it recently received another $1.8 million in funding from the U.S. Army for its laser-guided energy technology. Military funding helped the company report a 39% jump in first-quarter revenue, and the company had continued to grow its backlog.
Or further to fall?
Even though Applied Energetics has some of the coolest technology around, having 97% of its 2009 revenue coming from government contracts puts the company at the mercy of Washington and whatever the political climate favors at the time. With recent defense budget cuts threatening defense contractors' top lines and the specter of more defense cuts overhanging the entire defense sector, relying on the government for nearly all of Applied Energetics' business is more than a little unnerving for many investors. Even with the work it has today, the company's income statement continues to remain full of red ink, and some investors are bearish on its chances of turning a profit -- even if more business comes its way.
What's your call?
Overall, just 66% of the 121 CAPS members rating Applied Energetics are bullish and see it outperforming the broader market. For my part, I'm leery that more esoteric and unproven weapon systems and their development programs will be the first to fall in a budget-cutting environment.
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 5,400 stocks that our 165,000-plus members have covered.
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