"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.
Today, we once again stand beneath Mr. Market's silverware drawer, measuring which knives have fallen the furthest. Then we'll call on CAPS to ask which of these stocks -- if any -- Foolish investors believe are ready for a rebound. Let's meet today's list of contenders, drawn from the latest "52 Week Low" list at Nasdaq.com:
|
52-Week High |
Currently Fetching |
||
|---|---|---|---|
|
Cintas |
$42.89 |
$29.78 |
***** |
|
Level 3 Communications |
$6.77 |
$2.48 |
*** |
|
Gannett |
$63.50 |
$31.90 |
** |
|
Blackstone |
$38.00 |
$16.57 |
** |
|
UBS |
$66.26 |
$33.14 |
** |
Knives and knaves
Once again, our list proves the corollary of the "everybody loves a winner" maxim. When a stock falls on hard times, its popularity evaporates right quick. Nearly every stock on today's list bears a marquee name brand, but they've also got another thing in common -- they're not particularly well-liked these days. With one exception (on both counts): Cintas, which makes, rents, and sells uniforms.
(Crickets, chirruping.)
Oh, come on now! We can't spend all our time writing about nano-stem-cell-flash-memory makers, or ethanol-powered 4G software. Nor must a company be exciting to be successful. You've heard of Valero
The bull case for Cintas Corp.
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weiwentg introduced us to the company last May. "Cintas designs, manufactures, rents and sells uniforms to people, and benefits from significant scale advantages in doing so. Their net margin over the last 12 months is 9.3%, far higher than competitors'. Its highly-fragmented customer base gives it bargaining power. I think it's a slow but steady kind of business which should continue to grow, and raise its dividends."
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TheCreek Foolishly observed last summer that, "Everybody needs something to wear to work everyday. Cintas has 700,000+ clients with 5 million people wearing their clothes EVERDAY. The company is run by dad and son Farmer who own 14% of the company and always manage to see increased earnings every year."
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And CAPS All-Star sojournerks praised Cintas just last week for having "good management, 20% of market share and gaining 2 to 3% each year," and its margins were "holding well."
So far so good, you say. But is the price right? Well, you could actually ask for it to fall a bit further, but it's getting awfully close to attractive. Cintas currently trades for 14.3 times trailing earnings, versus growth expectations of 11.5% per year over the next five years. Free cash flow lags net income by about 10%, but price-to-free cash flow is still a pretty reasonable 15.3.
Put it all together, and I can't say I'm exactly trembling with greed over Cintas, but intrigued? Sure. The price isn't half bad as it stands, and the company's large and growing market share suggests a defensible moat that could justify a premium price. So, yes, if we somehow manage to dodge the recession everyone's calling for these days, I could certainly see this one bouncing.
Time to chime in
Of course, the aim of this column isn't just to tell you what I think about Cintas -- or even what other CAPS players are saying. We really want to hear your thoughts. Is now the wrong economy to be buying into a company so closely tied to service jobs? Or are short-term economic fears precisely the reason this stock is so cheap? Click on over to Motley Fool CAPS and tell us what you think.
Motley Fool CAPS: It's fun, it's free, and it just might make you famous.
