In investing as in life, appearances can be a powerful draw. It's always the trendiest, most buzzed-about stocks we find the sexiest, even when they come with an exorbitant price tag. But if you ask Professor Bruce C. Greenwald of Columbia Business School, it's the "ugly," "cheap," "boring" and "out-of-fashion" stocks we really should be chasing after.
Today's hot stock may turn around and burn you tomorrow -- so if you're looking for a long-term relationship with your portfolio, you're better off committing to the market's reliable, plain-Jane securities.
Greenwald advocates a simple, value-driven approach that locates obscure, stable, small caps for your potential universe of investments. From there, the prospective investor must figure out what those stocks are worth, by looking at the balance sheet to determine assets and earnings power.
While most investors try to project earnings, Greenwald favors this systematic, Buffett-like strategy, focusing on valuation ratios. After a value determination is made, the next step is research and risk evaluation. Then, you wait -- patience is key to this slow and steady investment strategy.
For Greenwald, the value approach will always outperform all other investment strategies. Rationalists can see great long-term gains from irrational market behavior, of which there's certainly no shortage. (Watch his entire presentation here.)
Most investors "love to buy the dream," but "when money is going into the dream, it's leaving other areas." According to Greenwald, "that tendency of human beings to pursue those kinds of get rich quick opportunities ... creates the value opportunities for the plodding careful investors."
So when it comes to value investing, it's the ugly ducklings you want to keep on your radar. Here is a list of stocks that may not be pretty, but valuation trends suggest you should take a closer look. All of these small-cap stocks have recently been downgraded by Wall Street analysts, and have attractive valuation ratios. But be careful: There may be a very good reason why these companies are trading at depressed levels -- use this list as a starting point for your own analysis. (Click here to access free, interactive tools to analyze these ideas.)
|
Company |
Market Cap (in Millions) |
Most Recent Analyst Action |
Valuation Ratios |
|---|---|---|---|
|
China Integrated Energy |
199.94 |
Oppenheimer downgraded the stock from Outperform to Sector Perform on 01/05/11 |
Forward P/E ratio at 4.13, Price to Earnings Growth at 0.25, and Price/Cash ratio at 2.51 |
|
Navios Maritime Holdings |
538.75 |
Dahlman Rose downgraded the stock from Buy to Hold on 02/07/11 |
Forward P/E ratio at 5.39, Price to Earnings Growth at 0.15, and Price/Cash ratio at 3.76 |
|
JA Solar Holdings Co. |
1365.68 |
Collins Stewart downgraded the stock from Buy to Hold on 01/26/11 |
Forward P/E ratio at 6.22, Price to Earnings Growth at 0.5, and Price/Cash ratio at 4.35 |
|
Yongye International |
340.65 |
Brean Murray downgraded the stock from Buy to Hold on 02/07/11 |
Forward P/E ratio at 4.83, Price to Earnings Growth at 0.13, and Price/Cash ratio at 13.64 |
|
The Ensign Group |
550.88 |
Stifel Nicolaus downgraded the stock from Buy to Hold on 01/03/11 |
Forward P/E ratio at 13.12, Price to Earnings Growth at 0.85, and Price/Cash ratio at 14.92 |
Analyst ratings sourced from Finviz, valuation ratios sourced from Finviz.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research. Note: The numbers on top of items represent the forward P/E ratio, if available.
Kapitall's Eben Esterhuizen and Alicia Sellitti do not own shares of any companies mentioned.
