Are These 3 Slaughtered Stocks Worth a Look?

For long-term buy-and-hold investors, the market's movement over the last four weeks shouldn't make too much of a difference either way. But for those who have been watching, an investment in the S&P 500 yielded up a 5.1% return.

But shareholders in the companies listed below are sharing a much worse fate, as they are all down more than 30% since late July. Read below to see if this makes them a deal right now, or if you're better off staying away. At the end, I'll offer up access to a premium report on the most talked-about stock of the year.

Company

What It Does

4-Week Price Change

Facebook (Nasdaq: FB  ) Connect the world (38%)
Molycorp (NYSE: MCP  ) Rare-earth minerals (48%)
Education Management (Nasdaq: EDMC  ) For-profit education (29%)

Source: Google Finance.

Before going any further, it's worth noting that I have an investing style that works for me, but may not for other people. I prefer to buy and hold companies that I'm proud to own, regardless of how they perform as investments. After that, I hope to buy at a fair price.

This is important to note because there's a block of investors, namely value investors, who have a different take. These folks are looking to capitalize on mispriced stocks and sell as soon as they've hit their fair value. There's nothing wrong with this type of investing. It's just not for me, and it's important to point this out before diving in.

1 company to "like"
I'm going to admit, I avoided just about any story that was published about Facebook this summer. It seemed that everyone had a different take on the company going public, and I had no desire to deal with that kind of noise.

Having said that, there's a lot to like about the company. For starters, I'm a big fan of founder-led enterprises. Many businesspeople look at going public as their crowning achievement, and then retire off into the sunset. In the end, the new shareholders who buy the stock kind of get screwed.

That's certainly not the case with Mark Zuckerberg, who was pretty much forced to take his company public because it had so many investors. Either way, Facebook is a part of Zuckerberg's identity, and in my opinion that means he'll run the company with a long-term time horizon.

Facebook is down heavily since going public, spurred by a botched IPO and an earnings release that failed to impress investors, and has continued to fall on the ending of the lock-up period for insiders. But let's not forget what a powerful and ubiquitous phenomenon we're talking about here. The company has connected the world in ways never before seen, and has played a crucial role in everything from asking for dates to prom to toppling Middle Eastern regimes.

I know I'm not referring to any metrics or plans for profitability here, but in the long run, I think Zuckerberg will find a way to keep the business relevant. I'm not buying shares for my portfolio, but I have no problem making a bullish CAPScall on my All-Star profile.

What's a rare-earth metal?
Well, for starters, rare-earth materials aren't all that rare, but that's beside the point. Back in January, I showed how rare-earth minerals like cerium, lanthanum, and neodymium are crucial ingredients in everything from batteries to flat-screen TVs to smartphones.

The key thing to know here is that for a long time, China provided the bulk of the world's minerals on the cheap. When that supply tightened, a bunch of companies rushed to fill the void. I'm a big fan of Molycorp's sustainable and earth-friendly approach to mining, but there are several red flags. Foremost among them is the company's inability to accurately predict how much it will be spending, as it continues to dilute shares with secondary offerings.

I'm not going to make a bearish call, but you won't find me buying shares of the company any time soon.

An entire industry to avoid
It's no secret that I don't like for-profit schools. Though there are some diamonds in the rough, I generally see the field as perverse: The companies get money from the government by convincing students that a degree from their (mostly) online schools will improve their lives. All too often, all this does is lead to profits for the schools and crushing debt for students.

Education Management isn't the only company to disappoint investors this quarter: Career Education (Nasdaq: CECO  ) and Strayer (Nasdaq: STRA  ) both had similar experiences. I don't have a crystal ball to tell me if these companies will find an appropriate and sustainable place in our country's education field; given that most have suffered huge falls over the past year, I'm not going to make a bearish call, but as with Molycorp, you won't find me anywhere near these guys.

Keep up the research
As I continue to investigate Facebook for my real portfolio, I'll be using all the Fool has to offer. I suggest you do too, by checking out our premium report on Facebook. You'll not only get an overview from our top analysts, but updates throughout the year to follow the company. Get your copy today!

Fool contributor Brian Stoffel does not own shares of any company mentioned. The Motley Fool owns shares of Facebook. Motley Fool newsletter services have recommended buying shares of Facebook. The Motley Fool has a disclosure policy. 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.


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  • Report this Comment On August 29, 2012, at 6:39 PM, patdeman69 wrote:

    Brian,

    Regarding for-profit schools you said: "The companies get money from the government by convincing students that a degree from their (mostly) online schools will improve their lives. All too often, all this does is lead to profits for the schools and crushing debt for students".

    I have a degree from a for-profit school (accredited by the Dept. of Education and online) and it certainly helped me advance on my career. Am I in debt? Yes, indeed. However, this is just how Capitalism works. Doesn't our government provide liquidity to the American economy by "injecting" money into banks? Don't banks make their money by charging interest and ultimately placing us in debt? Isn't the banking industry perverse?

  • Report this Comment On September 13, 2012, at 10:22 AM, tomryannova wrote:

    Let me restate what you said:

    The *institutions* get money from the government by convincing students that a degree from their schools will improve their lives. All too often, all this does is lead to *cash windfall* for the schools and *crushing debt* for students.

    You may not see it, but your statement applies to both public and private.

    The straw argument you pull from is being used by the govt to try to crush private schooling companies. Take note of this, because the current govt is very adept at crushing perceived enemies and they tend to target the vulnerable and there is a strong chance they'll be in charge for the next four years.

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