I am always looking for a good deal, whether that means buying an extra box of Cocoa Puffs when they're on sale or pouncing on undervalued stocks. The idea that anybody would sell a stock for less than its worth may seem silly, but legendary value investor Ben Graham tells us, by way of allegory, how we can look out for these situations.
In The Intelligent Investor, Graham introduces readers to a wacky guy named Mr. Market. Mr. Market's game is to pay you house calls on a daily basis to offer to sell you interests in businesses he owns or to buy from you interests in businesses you own. Sometimes Mr. Market will show up at your door very excited and offer you premium prices for your holdings, while at other times he'll be totally depressed about the future and will offer to sell you what he has for as low as pennies on the dollar.
To find some of the stocks that Mr. Market is depressed about, I've turned once again to The Motley Fool's CAPS investor community. Each of the companies below had been given a five-star rating (the highest) by our community of investors just 30 days ago:
|
Stock
|
30-Day Return
|
One-Year Return
|
Current CAPS Rating
|
|
Sigma Designs (:SIGM)
|
(35.5%)
|
93.4%
|
****
|
|
Nuance Communications (NASDAQ:NUAN)
|
(26.8%)
|
28.7%
|
****
|
|
Wyndham Worldwide (:WYN)
|
(25.5%)
|
(30.8%)
|
****
|
|
Sierra Wireless (NASDAQ:SWIR)
|
(21.5%)
|
(2.2%)
|
****
|
|
Allegheny Technologies (NYSE:ATI)
|
(20.5%)
|
(13.3%)
|
*****
|
|
Titanium Metals (NYSE:TIE)
|
(21.1%)
|
(18.6%)
|
*****
|
|
GigaMedia (NASDAQ:GIGM)
|
(20.1%)
|
77.1%
|
*****
|
Data from Motley Fool CAPS as of Jan. 8.
As the table shows, these stocks are all still very well-regarded by the CAPS community despite their underperformance over the past month. While these are not formal recommendations, they could be a great place to kick off further research. I'll even get you started with some thoughts on Global Gains recommendation GigaMedia.
Down, but not out
Like a caterpillar turning into a butterfly or Marky Mark of the Funky Bunch becoming Mark Wahlberg the actor, GigaMedia has managed to pull off a very successful transformation. The company started life as a lackluster -- and very unprofitable -- Internet service provider and land-based music retailer, but thanks to a few good acquisitions, has become a profitable and rapidly growing service provider and operator in the online gaming world.
Since becoming a gaming software provider via an acquisition in 2004, the company has increased revenue fivefold, from just under $33 million to $150 million over the last 12 months, and has become very profitable. The growth, new business focus, and good location (the company is based in Taiwan) led to a dizzying climb for the stock, from a low of $0.65 in mid-2004 to as much as $25 in October of last year. Since then, about a third of the value has been chopped off the stock.
CAPS players have consistently sounded a positive tone on the stock, even through the recent sell-off. CAPS All-Star MArgersinger is still beating the S&P by more than 34 percentage points since his July outperform call on GigaMedia, and noted:
The potential for this company's products in the burgeoning Asian market for online entertainment and gambling almost insure[s] that [GigaMedia] will experience heady growth over the next few years. The management team seems to be up to the task and has worked diligently to expand the company's product offerings and markets.
Fellow All-Star darkgoody gave a thumbs-up at about the same time and more recently added that "there will probably continue to be a lot of volatility in the short term as investors sort this one out, which should provide plenty more good buying opportunities." He concluded that, despite the volatility, GigaMedia "is very likely to exceed earnings guidance in the coming quarters ... [and] I think this company's a multi-bagger over the next five years."
So, has the recent drop created a good buying opportunity? Or is there more downside ahead? Head over to CAPS and share your thoughts with the 80,000-plus other players. Even if you'd prefer to pass on GigaMedia, you can check out a couple of the other stocks listed above or any of the more than 5,300 stocks that are rated on CAPS.
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