5 Bargain Stocks to Take Advantage of the Plunge

May has been a lousy month for stocks so far. I don't have to tell you that.

But if it's been a bad month for stocks in general, it's been a really bad month for riskier, higher-beta stocks. Which makes sense -- by definition, higher-beta stocks tend to rise faster than the average, but they also fall harder than the average. By and large, that's made it a pretty painful experience for my portfolio of bargain stocks.

There's a silver lining, though. As my bargain stocks get cheaper, there are other stocks that are entering bargain territory or becoming even bigger bargains. So perhaps it's time to do some shopping.

Here are five stocks that caught my eye.

Company

Market Cap

Price-to-Book Value

MetLife (NYSE: MET  ) $32.9 billion 0.56
Sony (NYSE: SNE  ) $13.9 billion 0.54
Research In Motion (Nasdaq: RIMM  ) $5.7 billion 0.58
Hercules Offshore (Nasdaq: HERO  ) $591 million 0.6
Trina Solar (NYSE: TSL  ) $452 million 0.37

Source: S&P Capital IQ.

Off-shore driller Hercules Offshore is a potentially tempting pick. I highlighted the stock in late 2010 and it shot to the moon shortly thereafter. Now, with the stock coming back to earth, is it time for a second bite at the apple? I'm not so sure. Since the last time I gave the stock the nod, the company hasn't really improved its position. Net debt on Hercules' balance sheet is down, but its operating loss has expanded and EBITDA has fallen, putting the company in a more precarious position. Day rates have been increasing and that could be the start of a turn for the company, but it's hardly a slam dunk.

While I may be just lukewarm about Hercules, I'm downright cold on Trina Solar. As I previously noted with competitor First Solar, being an early mover in a developing field is wrought with danger. I'm actually excited about solar over the long term, but it's highly questionable which of the companies that exist today will still be around for that bright future.

Better bets
The remaining three stocks -- MetLife, Sony, and Research In Motion -- will all be added as "outperforms" in my CAPS portfolio and become serious buy considerations for my "bargain basket" portfolio.

There's a lot about Sony that's ugly right now, particularly if you're looking at the company's financials. But the Sony brand is a strong one and this is a huge, diversified conglomerate that extends from TVs to video games, movies, and life insurance. I'm willing to bet that there's more value still here than the market is giving the company credit for.

Research In Motion is yesterday's news as Apple and Google are absolutely dominating the mobile-phone market these days. But what I can't help noticing is that the company is still plenty profitable, still earns a fair return on its equity, and has a very clean, debt-free balance sheet. It's dicey to bet on a business that's getting beat up by the competition, but RIM's financial strength may put the odds in investors' favor.

Finally, MetLife has its challenges -- it could be hampered by being labeled a "systemically important financial institution"; it's making a strategic shift away from variable annuities and toward accident and health insurance; and there are concerns around its investment portfolio -- but these strike me as shorter-term speed bumps as opposed to long-term cripplers. In that light, I think the market has discounted the stock too much for those fears. With shares currently fetching about half of book value, versus pre-recession multiples well above book value, I think this may be the best bet of the group.

A safer choice
If carefully managed, I think a diversified portfolio of these bargain stocks can be a solid play for some investors. However, the volatility and boom/bust outcomes may make it too stomach-churning for other investors. If the above picks sound too wild for your portfolio, you can find picks that will let you sleep much easier in The Motley Fool's special report: "Secure Your Future With 9 Rock-Solid Dividend Stocks." You can even snag a free copy of that report by clicking here.

The Motley Fool owns shares of Google and Apple. The Motley Fool has sold shares of Sony short. Motley Fool newsletter services have recommended buying shares of Apple, First Solar, and Google, as well as creating a bull call spread position in Apple. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Matt Koppenheffer does not have a financial interest in any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.


Read/Post Comments (22) | Recommend This Article (57)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 29, 2012, at 5:30 PM, jaarsrep wrote:

    Have you seen what's happening to RIMM right now? The tires have come off and it's running on the rims, excuse the pun! Your chart shows it around $11 but right now it's in the $9-range. It's problems are all over CNBC. Are you still going to say it's a good buy?

  • Report this Comment On May 29, 2012, at 5:30 PM, TSIF wrote:

    Hope you held your RIMM call for a day.....the after hours beating was a bit excessive since RIMM only repeated what they had already stated.....they are NOT (currently) profitable. Still, I agree their cash postion, patents and niche could help them recover, or at least give them bargaining power should there be intested in any of thier unique pieces. Good luck.

  • Report this Comment On May 29, 2012, at 5:34 PM, TSIF wrote:

    The $9.50 has already settled to $10.30. Although, unlike many other equities people judge too quickly on after/premarket trades, RIMM does have some volume behind it. Overall, hard to say what the serious investors will "revalue" it at the next few days. Matt's clear that a high beta 'bargain basket' equity has risk/rewards that don't fit most investors portfolio.

  • Report this Comment On May 29, 2012, at 5:42 PM, dddeedee wrote:

    The plunge is not over! let's see if congress can extend the debt ceiling and deal with sequestration without destroying the economy.

    I'm voting against congress doing anything helpful for the economy.

  • Report this Comment On May 29, 2012, at 6:04 PM, mikecart1 wrote:

    RIMM is a disaster and I saw this at least 2 years ago when Jim Cramer was praising it as the best play in the cell phone/communications business. It was over $80/share and believed to go much higher. Thank God I used my brain and ignored Cramer on this one. You don't need to be an investor for this call. Do you see anyone you know that has a Blackberry that isn't given by their company? Exactly!

    BTW, the plunge continues in after hours today: $10.43/share. OUCH!

  • Report this Comment On May 29, 2012, at 6:14 PM, TOM48 wrote:

    This was useless

  • Report this Comment On May 29, 2012, at 6:46 PM, TMFKopp wrote:

    To be clear, let me reiterate what TSIF rightly picked up from the article -- these are not meant as "these are great companies that you should invest in for the long term."

    These are seriously beaten-down stocks backed by companies that are struggling in one way or another. As part of my broader personal portfolio, I keep a basket of these -- relying on the idea that some will do really well while others will tank. I put a small investment in each that I go with and *don't* double down on any.

    It's a different approach from much of what you'll find on TMF and much different from what makes up most of my own portfolio (http://www.fool.com/investing/general/2012/05/25/3-dividend-.... But I like it as a side strategy that takes advantage of the fact that investors often stampede out of a stock and leave it for dead long before it's actually terminal.

    It's not exactly like, but similar to Ben Graham's approach of looking for "cigar butts" that have one puff left.

    Matt

  • Report this Comment On May 29, 2012, at 7:38 PM, JohnnyYuma13 wrote:

    Tom48, roger that don't put any money into any of these dogs.

  • Report this Comment On May 29, 2012, at 11:07 PM, RipRagge wrote:

    RIM? Seriously? That call invalidates the rest of the post. RIM is bleeding badly and there are no substantive reports of anything happening to stop it.

    Everybody I know who uses a company-provided Blackberry has a personal iPhone in their pocket. I just met another one today. His company has threatened to quit using Blackberries altogether unless RIM fixes serious issues. That butt may have a couple more puffs, but it looks to me like you have to be willing to burn your lips.

  • Report this Comment On May 30, 2012, at 2:00 AM, Andru16 wrote:

    RIM has serious issues. They have over $1 billion worth of unsold inventory. And they are laying off people left right and center. I'd stay away.

  • Report this Comment On May 30, 2012, at 1:18 PM, NvrLose wrote:

    Don't mean to be the contrarian in this debate, but have any of u RIM haters travelled outside of the US to lesser developed nations recently... Remember it's a global market... I was just on business in South Africa for a cpl months and everyone thing uses a blackberry. It's just way more supported with there lack of efficient Internet... Maybe that second puff for this company will come from emerging markets where mobile use still has way more room to expand and grow. Not that I'm laying my money on RIM but hindsight is always 20/20 and when BBM was all the rage 6-7 years ago there'd prob be alot of people tellin you that u were crazy to think that Apple would dominate the mobile market... So remember ride the trend but don't get lost in it... The tides are cyclical ;)

  • Report this Comment On May 30, 2012, at 1:28 PM, anokie1954 wrote:

    I personally think RIMM will hit $5 per share long before it will hit $20.

  • Report this Comment On May 30, 2012, at 3:30 PM, hamburgs wrote:

    In March, RIMM announced that they're refocusing the company on the business sector amid rapidly shrinking revenues.

    http://www.usatoday.com/tech/news/story/2012-03-29/blackberr...

    It doesn't seem reasonable to expect robust growth even if they successfully execute on their more modest plan.

  • Report this Comment On May 31, 2012, at 12:49 AM, Notfooled1 wrote:

    Koppenheffer? Is that funny or what? Heffer really is a fool but not as bad as anyone who believes the garbage he writes.

  • Report this Comment On June 01, 2012, at 10:59 AM, WineHouse wrote:

    RIM is a dead dog. Stop beating the poor thing. And don't be so stupid as to take this article's advice about it -- even if it bounces up a bit it's only because of "pump and dump" stories (I hope this isn't one of those) and the bounce won't last long at all. RIM is the new Eastman Kodak.

  • Report this Comment On June 01, 2012, at 11:49 AM, ezchair wrote:

    This advice to consider buying Rimm stock is so Ill advised I had to respond.

    Please ignore anything this fool says as he has no clue. This stock is going the way of worlldcom and so many others.

  • Report this Comment On June 01, 2012, at 1:31 PM, samedge2 wrote:

    Without even commenting on RIM, how could someone in their right mind actually recommend Sony right now? They're going to lose 6.4b this year! I would never count this company out based on their past innovations, but man, this is a company in serious decline at the moment.

  • Report this Comment On June 02, 2012, at 6:03 PM, Sorlandet wrote:

    Usually "undervalued" stocks got their price tag for a reason. Ask yourself: Why would any stock be valued significantly below book value without a corpse in the cupboard?

    Why would these companies offer any growth or income potential that is higher than what the index is offering?

    An analysis that is *solely* focused on valuation metrics like P/E and P/B is bound to steer you towards dogs.

  • Report this Comment On June 03, 2012, at 9:25 PM, Stockinv wrote:

    I saw RIMM in the list and quit reading and skipped down to say are you kidding me??

  • Report this Comment On June 04, 2012, at 12:00 PM, FoolishLonghorn wrote:

    RIM will likely be bought out. Their patents and cash are about equal to their market cap.

    Bottom-fishing for RIM today would be high-risk, as the value will continue to drop until the inevitable buyout.

    But eventually, RIM will be bought, and for those that buy at the right time, there is a healthy profit to be made.

  • Report this Comment On June 06, 2012, at 1:04 PM, LetsThink wrote:

    Trina is a bad choice. This stock is not about to jump by any means. $6 is a very accurate price for that Chinese company. I would switch Trina Solar for Yingli Green Energy. Yingli is trading at ridiculous lows and is growing tremendously. Its way too big to get eaten up in the long term, and has fantastic market share.

    Yingli is a much better bet than Trina if you are in it for money.

  • Report this Comment On June 06, 2012, at 1:08 PM, TriedTrue wrote:

    Think is right. drop Trina switch for YGE, it won't be long before YGE doubles. not a lot of room for Trina stock to go in the short term.

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