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"We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful."
-- Warren Buffett
Of all the Oracle of Omaha's orations, this one holds a special place in Foolish investors' hearts. When 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, prompting buyers' bid prices to fall in tandem, creating the very price decline that both sides feared in the first place -- until the selling stops.
Until it does, savvy investors can get greedy, snapping up bargains from these fearful sellers (assuming they really are bargains). 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 picks, we'll check them against the collective intelligence of Motley Fool CAPS.
Today's contenders include:
CAPS Rating (out of 5)
|Endurance Specialty Holdings (NYSE: ENH )||$41.02||*****|
|AeroVironment (Nasdaq: AVAV )||$31.52||****|
|ATP Oil & Gas (Nasdaq: ATPG )||$15.87||****|
|MannKind (Nasdaq: MNKD )||$3.66||**|
|Microvision (Nasdaq: MVIS )||$1.26||**|
Judging from the star ratings our CAPS members have assigned to these stocks, it seems investors generally agree with Wall Street's pessimism over Microvision and MannKind. In contrast, we're considerably more optimistic about ATP, AeroVironment, and e-specialty Endurance -- and I have to say that I agree with the majority on all points this week.
Take Microvision for example. This miniature "projection display" shop is due to report earnings Thursday, but no one's feeling particularly optimistic. On average, Wall Street analysts expect to see $0.08 in per-share losses, followed by more losses next quarter, a net loss for the year, and another net loss next year. (Feeling like cheering yet? I thought not.)
MannKind? You know what I think about that one. Last week, I told Fool biotech analyst David Williamson that I think this perennial cash-burner is one of the biggest risks in biotech. Five days haven't changed my opinion.
On the other side of the coin, we've got ATP and AeroVironment. As I wrote last month, ATP is suffering the consequences of an IEA report on rising crude oil stockpiles. In the near term, that's probably a headwind for the stock. Farther out, though, analysts see ATP selling for less than eight times fiscal 2012 earnings. If they're right, that's a pretty nice price for a projected 15% grower. Meanwhile, AeroVironment remains one of my all-time favorite stocks -- at the right price. My concern here is that after running up 35% over the past year, the stock looks a mite pricey at 30 times trailing free cash flow.
Now, don't get me wrong -- I am getting interested in AeroVironment as its share price retrenches toward fair value. I'd just like to grab it at a bargain price. As for you, though, there's no need to wait for a better price on the highest-ranked stock on this week's list. If you ask me, Endurance Specialty is priced quite nice as it is...
The bull case for Endurance Specialty Holdings
And I'm not the only one who thinks so. Back in March, All-Star investor JBouchard crunched the numbers and concluded Endurance is easily worth a "fair value estimate of $90" -- and pays a great dividend to boot.
CAPS member gameguru agrees that after taking "a pretty big hit in Q1 2011," this "diversified insurance/reinsurance company" now trades at a bargain price. Plus, "they have a track record of careful underwriting with a historic combined ratio of about 90%."
Actually, the number's even better than that. According to Capital IQ, a division of Standard & Poor's, Endurance Specialty only pays out about $0.887 in claims on every dollar of premium it collects (an 88.7% "combined ratio" in industry parlance). That's a heckuvalot better than the 116.8 combined ratio we find at rival insurer AIG (NYSE: AIG ) for example. Fact is, it's even better than the granddaddy of all great insurance stocks, Berkshire Hathaway (NYSE: BRK-B ) reports -- 92.2. (When crunching combined ratios, lower numbers are better.)
Admittedly, combined ratios are a bit of an esoteric concept to many investors. But honestly, Endurance looks cheap no matter what ratios you throw at it. It costs 0.75 time tangible book value, for example. It sells for 10.2 times earnings, despite being pegged for 7% long-term growth and paying a 2.9% dividend.
Long story short, Wall Street may fear to tread at Endurance Specialty. As for me, though, I'm with the Fools who are rushing in this time. If you ask me, Endurance Specialty is a real steal of a deal.
Disagree? Feel free. Click over to Motley Fool CAPS right now and tell me why I'm wrong.