"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've got 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)
|Telefonica Brasil (NYSE: VIV )||$31.69||$21.37||****|
|Marvell Technology (Nasdaq: MRVL )||$16.86||$10.16||****|
|Advanced Micro Devices (NYSE: AMD )||$8.35||$3.72||**|
|Caesars Entertainment (NYSE: CZR )||$17.90||$7.18||*|
Stock markets drifted lower last week, with the Dow down an anemic 0.5% in the five trading days before the holiday break. Several stocks did more than just drift lower though. Before markets closed, each of the stocks named up above hit new 52-week lows. But why?
Beginning at the bottom, recent IPO Caesar's Entertainment got hit Monday when S&P hung a "negative" outlook on the company's debt. (No huge surprise there. We've been negative on Caesar's for months).
Chip stocks got hit hard, too, with AMD suffering a price target cut at the hands of Sterne Agee, and Marvell continuing to plumb new post-earnings-miss depths. In each case, the culprit appears to be weak expectations for consumer demand in the tech space -- as confirmed by glum guidance at Dell and HP.
Meanwhile, one four-starred Brazilian telecom in particular hit its 52-week low on basically no news at all. Could its unexplained weakness offer investors a bargain in disguise? Let's find out, as we head (way) south of the border to examine...
The bull case for Telefonica Brasil
CAPS member networkr thinks Telefonica is an obvious choice for value investors, given that "this company maintains a near monopoly in many regions in which it operates. With the continued economic growth in Latin America and notably Brazil, this one should provide a respectable return for investors."
billtbud, too, likes Telefonica's role in the "growing Brazilian market."
Meanwhile, kolyas2010 sums up Telefonica's potential in just three words: "Growth, Brazil, P/E."
Personally, though, I think a better summation here would be "Dividend, Brazil, P/E." You see, if analysts are right about Telefonica, the company's basically maxed out its earnings for the time being. While it's no bad thing to be at the top of its game, profit-wise, the truth is that most analysts see growth remaining stuck in the low-single-digits over the next few years.
Even so, slow growth shouldn't scare away investors. At a 10.1 P/E ratio, but paying out 8.3% annually, Telefonica Brasil's dividend is basically enough to justify the stock's low price all on its own. Also helping the company's case is the fact that Telefonica Brasil resembles its Spanish parent company (Telefonica S.A. (NYSE: TEF ) owns 74% of shares outstanding) in name only. Whereas Telefonica S.A. is drowning in debt, and no longer able to make dividend payments, Telefonica Brasil sports a rock-solid balance sheet with only modest debt ($2.7 billion), partially offset by $1 billion in cash.
With its five-star rating on CAPS, investors today clearly prefer Telefonica S.A. over its Brazilian subsidiary -- but they're wrong. Telefonica Brasil not only pays a better dividend, and sells for a lower P/E than its parent company. It also generates the majority of the profits that make the parent company's P/E look so good. For my money, it's a much better candidate to bounce.
That said, while there are many international stocks that pay good dividends, we here at the Fool still think "The Future Is Made in America." Read our free report, and find out which 3 stocks you want to own to profit from the new Industrial Revolution.