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 some stocks that Mr. Market is depressed about, I've turned once again to The Motley Fool's CAPS investor community. CAPS members have given the following companies one of the two highest star ratings:
|
Stock
|
4-Week Return
|
52-Week Return
|
CAPS Rating
(out of 5)
|
| Star Bulk Carriers (Nasdaq: SBLK ) |
(20.7%) |
(36.0%) |
**** |
| Fortinet (Nasdaq: FTNT ) |
(18.4%) |
136.8% |
***** |
| Chimera Investment (NYSE: CIM ) |
(5.4%) |
(13.5%) |
**** |
| New York Community Bancorp (NYSE: NYB ) |
(3.4%) |
(14.2%) |
***** |
| Altria (NYSE: MO ) |
(1.6%) |
19.2% |
**** |
Data from Motley Fool CAPS as of July 22.
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?
There are good times for a company to sell new shares and bad times for a company to sell new shares. With its stock trading at less than a quarter of its tangible book value, it would seem that now would be a bad time for Star Bulk Carriers to issue new shares. But it did so anyway.
Last week, Star Bulk's stock plunged after the company announced it had sold 16.7 million new shares. The $28 million it raised is expected to be put toward a previously planned purchase of two secondhand ships and "general corporate purposes." Not so slick, guys.
A company with a stock trading at 90 times trailing earnings doesn't have the option of delivering a "just OK" earnings report. That is, unless it wants to see its stock dive faster than me in the ring with "Iron" Mike Tyson. Unfortunately for Fortinet shareholders, the company's second-quarter earnings report was just OK and, sure enough, the stock took a nasty dive.
Non-GAAP earnings per share for the quarter were $0.09, a penny better than analysts' estimates. However, it appeared investors were expecting more from Fortinet in terms of forward guidance, and the 20% third-quarter revenue growth prediction just didn't cut it.
Chimera isn't the only mortgage REIT that's been a laggard lately. It's joined in losses by a number of others in its sector, including Annaly Capital (NYSE: NLY ) and Capstead Mortgage (NYSE: CMO ) . But why have they lagged even as the rest of the market has risen? I have to imagine it has a lot to do with investors fretting over what the knuckleheads in Washington are going to do.
If the debt ceiling isn't raised and the U.S. is allowed to default, the blast would send shockwaves throughout the economy, but particularly through the debt markets. For companies like the mortgage REITs -- whose main business is owning debt and financing that with healthy amounts of their own debt -- the impact could be severe.
Rounding out with New York Bancorp and Altria, this pair of declines had a lot to do with earnings disappointments. For New York Bancorp, a penny miss on the earnings-per-share line was enough to knock shares down nearly 4%. Meanwhile, Altria matched estimates, but said growth in the next quarter could be sluggish.
Picking a winner
Though the CAPS community has a high opinion of all of these stocks, that doesn't mean I have to agree. Star Bulk has a tantalizingly cheap price tag, but selling a huge amount of shares at the bottom (while paying a hefty dividend!) makes it an easy pass for me. Though I recognize that sometimes you have to pay up for growth, the high multiple on Fortinet will keep me away there. And I'd rather wait on the mortgage REITs to see how they fare when bond yields eventually start rising.
That leaves us with New York Bancorp and Altria. Both stocks have hefty dividend yields and nice, boring businesses. On the flip side, I've noted in the past that it seems like New York Bancorp could stand to bulk up its credit-loss allowances in proportion to its nonperforming loans. At Altria, there's the ever-looming crush of antismoking sentiment and the potential for even more stringent legislation.
If I had to pick one of the two, I'd go with New York Bancorp. It's not a perfect stock and has all the excitement of watching paint dry, but I think it has the potential to offer some pretty attractive returns -- assuming those low reserves don't come back to bite it. Also, while moral considerations don't have to play a part in your investing, I sleep better without cigarette companies in my portfolio.
I've gone ahead and given New York Bancorp 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 180,000-member community.
Interested in more dividend stock ideas? My fellow Fools have put together a free report "13 High-Yielding Stocks to Buy Today." Click here to get your hands on a copy.
RSS Headlines
Fool UK