"We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful." -- Warren Buffett
Of all of the Oracle of Omaha's orations, this one holds a special place in Foolish investors' hearts. When you're looking to bag a bargain, a panicked sell-off by jittery investors offers you a great chance to snap up stocks on the cheap.
In the short term, professional traders' pessimism can become a self-fulfilling prophecy. Desperate institutions lower their asking prices to get rid of a stock. Buyers' bid prices then fall in tandem and create the very price decline that both sides feared in the first place -- until the selling stops.
Until it does, savvy investors can "get greedy" by grabbing bargains -- assuming they really are bargains -- from these fearful sellers. In today's column, we'll see which stocks Wall Street's motivated sellers are most frantic to unload. Once we've compiled this shopping list of potential contrarian picks, we'll check them against the collective intelligence of Motley Fool CAPS.
Today's contenders include:
|
Company
|
Recent Price
|
CAPS Rating (out of 5):
|
|
GeoEye (Nasdaq: GEOY )
|
$17.55
|
****
|
|
Hovnanian (NYSE: HOV )
|
$7.69
|
*
|
|
Downey Financial (NYSE: DSL )
|
$8.29
|
*
|
|
Crystal River Capital (NYSE: CRZ )
|
$5.75
|
*
|
|
First State Bancorp
|
$7.98
|
*
|
Companies are selected from the "Institutional Ownership Down Last Month" list published on MSN Money on the Saturday following the close of trading last week. Recent price from Yahoo! Finance. CAPS ratings from Motley Fool CAPS.
So Wall Street appears to be selling housing stocks and banks. (Gee, I wonder why.) But that's not all. Seems the experts are also unloading shares of a certain satellite imaging company, and wouldn't you know it -- it's a Motley Fool Rule Breakers recommendation. Meanwhile, Foolish investors continue to believe that GeoEye's a buy. Let's find out why.
The bull case for GeoEye
Self-proclaimed CAPS All-Star Allstar13913 introduced us to the company back in February:
GeoEye is a seller of satellite images to governments worldwide, and has substantial contracts with the U.S. Government. … [It has experienced] satellite launch delays that are beyond the [company's] control. ... I believe ... GeoEye-1 will not be launched into orbit until at the very earliest, August 2008. The U.S. government has already agreed to buy $197M of GeoEye-1's imagery, in the 18 months after the launch, and is footing $237M of the intial launch costs. With this much government support, I don't believe this company can fail.
But a postponed launch of its dash-one satellite isn't the only problem GeoEye's facing. Fellow All-Star AxlesUp elucidates: "GEOY is taking a beating [because of] a miss on its earnings and poor handling of their communications with [Wall Street. Let's] hope that their new satellite launches in [August] and [isn't] bumped [by NASA] missions again."
One of the great things about CAPS is that with 105,000 investors and counting, we're bound to have a few contributors who can offer firsthand experience in the industries they're describing. One such investor, kinseysf, confides: "I work in the imagery community and commercial imagery will be used by the gov't for many years to come. Google (Nasdaq: GOOG ) Earth, GIS systems, and many others will be major customers."
Maybe, maybe not. As it turns out, Google is currently patronizing GeoEye's archrival, DigitalGlobe. As is Oracle (Nasdaq: ORCL ) . As is Microsoft (Nasdaq: MSFT ) . And although there's no reason in the world (pun intended) these companies can't buy from two global-imaging companies, I'm not sure there's necessarily a reason they'd need to, either.
There's also the little matter of valuation to worry about. Sure, GeoEye sells for a minuscule price-to-earnings ratio of 5 based on its trailing earnings. But with its current fleet of satellites aging, and dash-one not yet launched, next year's earnings look a bit sketchy, and the forward P/E is accordingly several times higher. If I can beg your indulgence for just two more puns: I hope that GeoEye's profit picture will brighten once GeoEye-1 is in orbit, but until then, this investment looks like a bit of a moonshot. Gauge your risk aversion accordingly.
Time to chime in
Of course, the aim of this column isn't just to tell you what I think about GeoEye -- or even what other CAPS players are saying. We really want to hear your thoughts. Head 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.
RSS Headlines
Fool UK