With all the volatility in the markets today, there's no shortage of market seers trying to call a bottom. Man of the Year Ben Bernanke called a bottom not once, but twice, yet some economists still argue that the worst is yet to come.
Likewise, many investors wait anxiously for the market to come back, and salivate at the opportunity to nab good companies beaten 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 distinguish 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 30% in the past 52 weeks, even while they sit at least 40% below their 52-week high:
|
Company
|
CAPS Rating
(out of 5)
|
52-Week
Price Change
|
% Below 52-Week
High
|
|
ATP Oil & Gas
|
*****
|
37.7%
|
55.5%
|
|
Patriot Coal (NYSE: PCX )
|
****
|
63.3%
|
43.6%
|
|
Hovnanian Enterprises (NYSE: HOV )
|
*
|
42.8%
|
43.2%
|
Source: Motley Fool CAPS.
Shares of Hovnanian and some of its homebuilder competitors recently got a boost from Commerce Department data, which showed a 24% jump in new home sales in June over the previous month. But with a lowest-possible one-star CAPS rating, many investors remain bearish on the homebuilding industry and still see significant challenges ahead for the stock. Four-star rated Patriot Coal gets more positive accolades from CAPS members, however, as an uptick in steel demand and rising energy needs bode well for demand for coal.
The bottom case
There are several reasons why investors believe Patriot Coal may be looking nowhere but up today. Many investors expect Patriot Coal to benefit over the long haul from rising coal demand, and see a great opportunity in the recent drop in share price. The company reported higher second-quarter revenue with help from higher average selling prices, and forecast increasing demand for both thermal and metallurgical coal this year.
Peers Alpha Natural Resources (NYSE: ANR ) and CONSOL Energy (NYSE: CNX ) echoed similar views following their first-quarter earnings releases, with both anticipating strengthening markets this year. Rounding out the optimism throughout the supply chain, rail operator CSX (NYSE: CSX ) , which handles some of Patriot's rail transportation, has seen its coal business on the rise as well, and expects that segment to continue to improve.
Or further to fall?
Yet even though Patriot Coal seems to have strong economic winds at its back, the company operates in an industry facing increasing regulatory scrutiny, which could potentially hurt its business. Following accidents at mines owned by Peabody Energy (NYSE: BTU ) and Massey Energy (NYSE: MEE ) , Patriot expects regulators to increase oversight. That will result in lower production and increased costs, prompting the company to lower its full-year sales volume outlook.
Patriot closed a mine of its own following a roof collapse, and regulatory inspections have already hurt Patriot's second-quarter production volume. That misfortune helped bump its cost per ton to more than $56 in the second quarter, from $52.41 a year ago, driving Patriot to post a $13.6 million second-quarter net loss. While many acknowledge that the likelihood of a devastating accident is low, some investors are concerned that the new operating environment will dampen an earnings recovery.
What's your call?
Overall, 95% of the 829 CAPS members rating Patriot Coal bullishly believe it will outperform the broader market. For my part, I agree with the majority in this case. I believe Patriot Coal presents a good long-term value at this price, even with risks facing the company and sector as a whole.
Your own opinion ultimately counts the most; CAPS is just there to help you form it. The Motley Fool CAPS database is all free, and you can even add your own insight on any of the thousands of stocks our 165,000-plus members have covered.
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