I am always looking for a good deal, whether that means buying an extra box of Golden Grahams when they're on sale or pouncing on undervalued stocks. The idea that anybody would sell a stock for less than it's worth may seem silly, but legendary value investor Ben Graham (no relation to the cereal) tells us, by way of allegory, how we can look out for these situations.
In The Intelligent Investor, Graham introduces readers to a wacky chap named Mr. Market, whose game is to pay you house calls on a daily basis to offer to sell you interests in businesses he owns or to buy from you interests in businesses you own. Sometimes Mr. Market will show up at your door very excited and offer you premium prices for your holdings, while at other times he'll be inconsolably depressed about the future and will offer to sell you what he has for as low as pennies on the dollar.
To find stocks that Mr. Market is depressed about, I've turned once again to The Motley Fool's CAPS investor community. Each of the companies below has been given one of the two highest ratings from CAPS members:
|
Stock
|
30-Day Return
|
1-Year Return
|
Current CAPS Rating
(out of 5)
|
|
Navios Maritime (NYSE: NM )
|
(14.1%)
|
27.4%
|
*****
|
|
Chesapeake Energy (NYSE: CHK )
|
(12.8%)
|
19.1%
|
*****
|
|
E*TRADE Financial (Nasdaq: ETFC )
|
(12.1%)
|
2.0%
|
****
|
|
Cemex (NYSE: CX )
|
(11.9%)
|
23.9%
|
****
|
|
NVIDIA (Nasdaq: NVDA )
|
(10.9%)
|
1.6%
|
*****
|
Data from Motley Fool CAPS as of July 12.
As the table shows, these stocks are all still very well-regarded by the CAPS community despite their underperformance over the past month. While these are not formal recommendations, let's take a closer look at whether opportunity could be staring us in the face.
Why so blue?
The stock market gods have been pretty angry for the past few months, so it hasn't been too tough to find stocks that have been beaten down.
Navios Maritime is a Greek company, but the dry bulk shipper operates globally, so its success isn't dependent on the Greek economy. That's obviously a good thing considering the lousy economic shape Greece is in right now.
That, however, doesn't mean Navios is skipping happily along. Recent economic uncertainty has stretched beyond Greece to the rest of Europe and beyond Europe to the rest of the world. That's no good for a company that brings home the bacon by shipping raw materials for companies like BHP Billiton and ArcelorMittal. As my Foolish colleague Jordan DiPietro recently pointed out, the free fall on the Baltic Dry Index seems to confirm that trouble is ahead for dry bulk shippers like Navios.
For natural gas giant Chesapeake, the slide likely has a lot to do with the big drop in natural gas prices. Why are prices falling? It's tough to say. Weather has largely been on the commodity's side as high summer temperatures have encouraged energy usage. Some traders seem to think market participants are simply shellshocked by the gut-churning drop that natural gas has experienced since 2008, and producers are willing to sell into any uptick in prices, including the one we saw in mid-June.
As my fellow Fool Anand Chokkavelu pointed out yesterday, E*TRADE is a company detoxifying its balance sheet. The general market pessimism over the past month may have shaken some investors out of the stock as they worried that the contamination would continue to poison the company's results. Certainly it couldn't have helped that Bank of America's (NYSE: BAC ) Merrill Lynch unit launched Merrill Edge, an online brokerage that will compete with E*TRADE.
We don't have to say too much more to cover Cemex. A major player in cement and other construction materials, a wobbly economy and weak building sector are no friends to the company. In a market environment where fear has been creeping back in, it doesn't help that Cemex still has a big debt overhang.
Closing out with NVIDIA, the past month has been only a small part of the company's concern. Since the end of last year, NVIDIA's stock has lost a cool 44% as a few of the company's chips have stumbled and competitors like AMD (NYSE: AMD ) have been looking tougher. Lowered revenue guidance for the company's July quarter didn't do any favors for the stock, either.
Picking a winner
Though the CAPS community has a high opinion on all of these stocks, I'm not necessarily on the same page. However, when it comes to Cemex, I'm more than ready to sing along with the CAPS' community's bullish tune.
In a business like cement and aggregates, it can be tough to carve out competitive advantage. But as global retailer Wal-Mart can tell you, size and efficiency can go a long way. It's that angle that Cemex has gone after with plenty of gusto.
Of course, the company's massive acquisition of Australia's Rinker -- which closed in July 2007 -- couldn't have been more poorly timed. The purchase not only made Cemex much larger just as the global construction market was about to face-plant, but it also weighed down the company's balance sheet with a huge amount of debt.
While that situation -- not to mention the stock's 75% drop from 2007 highs -- was, let's say, suboptimal, for those who already owned the stock, it may have created significant opportunity for those willing to wade in today. To be sure, Cemex has a tough road ahead of it, but its size and global presence should give it an edge if the global economy can drum up renewed vigor. With a current price-to-book value of less than 0.6, investors should have a good amount of cushion if things stay rocky.
I've given Cemex a thumbs-up in my CAPS portfolio. But here's the important question: What do you think? Head over to CAPS and share your thoughts with the other 165,000-plus members.
As Fool Tim Hanson points out, free lunches are tough to come by in the stock market, so beware of these dangerous stocks.
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