"Don't catch a falling knife," as the old saw commands. (Pardon my mixing a cutlery metaphor.) The idea of buying a former superstar stock at a discount price certainly has its attractions, but you have to make sure you catch the haft -- not the blade. That's where Motley Fool CAPS comes in.
It's been a while, but thanks to last week's sell-off, we once again have a chance to stand beneath Mr. Market's silverware drawer in hopes of snagging a bargain. Let's meet today's contenders.
CAPS Rating (out of 5)
|St. Jude Medical (NYSE: STJ )||$54.18||$32.95||*****|
|Frontier Communications (NYSE: FTR )||$9.84||$4.92||***|
|SINA (Nasdaq: SINA )||$147.12||$55.05||***|
|Cree (Nasdaq: CREE )||$31.34||$21.75||***|
|Nokia (NYSE: NOK )||$11.75||$4.68||***|
The week in weak stocks
Christmas is looking less than jolly for shareholders in the more than 4,900 separate stocks that lost value last week. It could be downright dismal for a handful of investors luckless enough to have bought shares in companies now bouncing along at their lowest prices in a year. But hark! Are those jingle bells I hear? Up above, you see the names of five stocks who've just hit bottom. (We hope.) What we're wondering today is whether any of them will bounce back anytime soon.
Let's begin at the bottom, with Nokia. Last week, the Finnish cell-phone maker announced its return to the U.S. market with a new $50 Lumia smartphone loaded with a Microsoft (Nasdaq: MSFT ) operating system. The price is right, and with Research In Motion (Nasdaq: RIMM ) guiding lower yet again, now seems like a great time for Nokia to make its comeback. Regardless, investors seem unconvinced that the company call put it off and give Nokia only three stars on CAPS.
Good news wasn't enough to save Cree from a 52-week-low last week, either. On Thursday, Maxim Group initiated coverage of the LED pioneer with a "buy" rating, hailing the company's $50 billion revenue opportunity in corporate lighting. But again, investors shrugged.
In contrast, SINA shareholders only wish they had some good news to ignore. Instead, the company got hit by a Chinese government edict requiring that bloggers on SINA's Weibo service register their real names. Result: The world just got a little more dangerous for politically active Chinese bloggers ... and SINA investors. And Frontier Communications really had no news at all that might explain its continuing decline.
But what about the list's highest-rated stock? What about St. Jude Medical? Last week, it suffered a potentially damaging product recall, when the FDA warned of defects in St. Jude's Riata defibrillator leads. If this recall winds up requiring that the estimated 79,000 leads already implanted in patients be surgically removed and replaced ... well, you can imagine how expensive that might become. Nonetheless, Foolish investors still rate St. Jude the most attractive opportunity on the list this week. Why?
The bull case for St. Jude Medical
I suppose there are any number of reasons one could like St. Jude Medical. CAPS member iddqkfyou, for example, likes the company's "[g]rowing revenue and profit," which are up 12% and 9%, respectively, in the most recent quarter.
Meanwhile, CAPS member thethirdchimp thinks that with "a growing population over the age of 65 in developed countries and a richer, broader middle class in emerging markets ... the demand for health care and heart-related equipment/supplies will rise substantially year over year for the next two decades."
But the great thing about Motley Fool CAPS is that, with 180,000 members and growing, we often get to hear from investors with firsthand experience of the companies and the products they're writing about. Case in point, CAPS member clbjblk wrote an impassioned defense of St. Jude based on personal experience with a neck implant manufactured the company manufactured -- a device that clbjblk says "was much better than other med devices," adding that "they are no 1 in my book."
But should St. Jude Medical be No. 1 on your stock shopping list? That's the real question.
Here's how I look at it: St. Jude sells for about 12 times earnings today and pays a 2.5% dividend -- not bad numbers for a company expected to grow earnings at 11% over the next five years. Its debt load is reasonable -- about $2 billion net of cash, and its free cash flow performance superb -- about 22% above the level it reports for net income. At a price-to-free cash flow ratio of less than 10, St. Jude looks like a fine candidate for a bounce.
But is it the best candidate out there? Find out, in the Fool's new -- and free! -- end-of-year report: "The Motley Fool's Top Stock for 2012."