The world's top value investors love it when their best stocks ideas are selling at bargain-basement prices. For those investors, companies offering fire-sale prices become no-brainer buys. So regular investors like you and me would do well to emulate the masters and look at companies offering a "buy one-get one" sale on their stocks.
Less than a year ago, these companies were trading for at least twice the value they currently do. While you'll naturally want to do more due diligence before buying, this might be an opportunity to pick up some quality companies at a severe discount. The market is down only 3% from its 52-week highs, so make sure there's nothing seriously wrong with these stocks before you plug them into your portfolio.
Falling off a cliff
The U.S. economy is contracting again. The Institute of Supply Managers reports that its manufacturing index recorded its worst drop in three years, tumbling to 49.7 as new orders plunged 12% in June. Anything below 50 is considered contraction; above 50, an expansion. With Europe already in recession and China getting hit harder than analysts had expected, the U.S. looks ready to join them.
Yet not every industry was equally affected. According to ISM, seven of the 18 industries it tracks were still reporting growth last month, particularly metals, where primary and fabricated metal products were up. The lingering demand in these segments may work out to the benefit of scrap-metal recycler Metalico, though its earnings report in May presages that these sectors may end up contracting next month, too. Its stock is already down 62% from its 52-week highs.
The steel industry is suffering from lower pricing and weak demand. Standard & Poor's recently downgraded the credit rating of AK Steel (NYSE: AKS ) because of those factors that it believes will affect its financial metrics, and the analysts at Zacks find the entire industry facing margin pressures. Thus far steel players like AK, Nucor, and Arcelor Mittal (NYSE: MT ) have been propped up by demand from automakers, and they may be behind why the ISM index is showing new orders up in fabricated metal products and such.
Metalico deals in both ferrous and non-ferrous metals, and it's hoping the second half of the year will bounce back and outperform the year-ago period every bit as much as the front half underperformed 2011's results. Highly rated CAPS All-Star TSIF says the scrap recycler keeps a tight rein on costs, but despite "weak cash flow" it is still "expanding and paying down some debt anyway, mostly with improving receivables."
The ISM index can be volatile, bouncing up and down between expansion and contraction, but the global slowdown suggests to me the drop in June will be repeated in coming months. Let me know in the comments section below or on the Metalico CAPS page whether you agree things may get worse before they get better, and then add the stock to the Fool's free stock-tracking service to keep tabs on whether the seven outperforming sectors join the 11 others in contraction.
A difficult sequence of events
You could say motion-control specialist InvenSense (Nasdaq: INVN ) is falling, because while its gyroscopic controllers are embedded in smartphone handsets from HTC, LG, Motorola, and Samsung, its absence from the iPhone is dragging it down. Shares are off 51% from their highs. But STMicroelectronics, which supplies Apple (Nasdaq: AAPL ) with similar chips is also down sharply for the year, down 45% from where it was trading in 2011.
But it seems more related to external problems than anything to do with InvenSense, or even STMicro for that matter. InvenSense recently reduced the high end of its guidance, since some of its handset customers were experiencing component shortages as a result of Qualcomm's (Nasdaq: QCOM ) having yield issues with 28-nanometer capacity shortages. But that's a rearview-mirror problem now, and the new lower price on the motion-sensor chipmaker presents an opportunity for investors.
While my outperform rating on InvenSense is lagging the market at the moment, I believe it will quickly rebound as supply issues ease and handset makers start churning out product again. Considering it owns 70% of the market for Google's Android OS, and Android outsells Apple's iOS, it shouldn't be long before InvenSense returns to its market-beating ways.
But tell me on the InvenSense CAPS page or the comments box below whether you think I'll end up with motion sickness betting on this stock, and then follow its progress by adding the ticker to your Watchlist.
Have half a mind
Smartphones were an amazing revolution, and there's still growth left when you choose the right companies, but The Motley Fool sees a new technological breakthrough coming, and it's found one company that's leading the way. Download your free copy of "The Only Stock You Need to Profit From the NEW Technology Revolution" and find out which stock will be changing the face of business. Did I mention it's free? Get your copy today!