"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."
So goes the thesis of my weekly Fool.com column "Get Ready for the Bounce." Therein, I run the 52-week-lows list compiled by Nasdaq.com through the "wisdom of crowds" meter that we call Motley Fool CAPS. Out the other end comes a list of stocks that have fallen so far, Foolish investors figure they're just bound to bounce back soon.
But is there a way to cash in on fallen angels who've plummeted even further? Perhaps. If a stock that's fallen for one year straight has headroom, then maybe a stock that's fallen even further, and for longer, has room to soar back even higher. In which case, an apparently left-for-dead stock could offer us a drop-dead gorgeous entry price. We're going to test that thesis today, starting with five stocks that just hit their five-year lows:
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Recent Price
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CAPS Rating
(5 max):
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Telecom Corp. of New Zealand (NYSE: NZT )
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$10.44
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*****
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Noah Education (NYSE: NED )
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$4.61
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****
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Gold Fields (NYSE: GFI )
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$8.34
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***
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Rubicon Technology
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$11.03
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**
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Blyth, Inc.
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$12.07
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*
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Companies are selected from the "New 5-Year Lows" list published on MSN Money on Thursday. CAPS ratings from Motley Fool CAPS.
Left for dead? Or drop-dead gorgeous?
Each of the stocks listed above has shed between 35% and 80% of its value over the past year alone, and most of them sit at or near their five-year lows. (Although both Noah and Rubicon stretch the definition in arriving on MSN's five-year-low list, having traded for less than a year.)
Wall Street has left 'em all for dead, but on Main Street, their popularity runs the gamut from loathed (Blyth) to loved (Telecom Corp. of New Zealand). Seeing as we're looking for the company most likely to turn the corner, there's only one company here that we want to look at today:
The bull case for Telecom Corp. of New Zealand
- CAPS member timClicks introduced us to the company back in March: "This organisation is just coming through a significant governmet-enforced restructure (the company was split into three). Given it's history … as a monopoly and of performing poorly to its customers ... I anticipate that its competitors will be able to attack [Telecom of New Zealand's] current dominance in the short term. However, it's still New Zealand's largest company and I'm very sure they'll be able to push forward in the medium-term."
- Meanwhile, in the now-term, MylesPatrick tells us (writing in February) that: "The stock will yield something around 7% this year and is one of the cheapest, high-quality companies in the world. It makes a little more than $1 billion per year in cash and pays out close to $500 million per year in dividends. Yet the stock trades for a total market value of only $4 billion. That's roughly four times its annual cash earnings and only eight times its average annual dividend payment."
- But when you get right down to it, jpmcd4477 uses two words to sum up the only real reason to own a stock for which analysts predict contraction of profits over the next five years: "Nice Dividend."
How nice? 6.8% nice, as of this writing. Plus, you get the benefit of a weak U.S. dollar inflating that dividend for you -- in times when the dollar is weakening, that is.
Right now, though, I have to point out that TCNZ doesn't offer the absolute best deal in the telco dividend sphere. The best deals appear to be here at home. Sure, TCNZ's dividend yield trumps those of Verizon (NYSE: VZ ) , AT&T (NYSE: T ) , and Sprint Nextel (NYSE: S ) , but all three of these domestic telecoms are expected to grow their profits (at varying rates) over the next five years.
Or you could consider the compromise solution: Qwest (NYSE: Q ) . That one gives you a hefty 7.8% payout, trumping every company named above, while expecting minimal growth of 3.3% per year.
Time to chime in
But my opinion is not set in stone. A 6.8% yield is still pretty nice, and maybe the analysts are being overly pessimistic about TCNZ's growth prospects -- which are, like beauty, in the eye of the beholder. So does Telecom Corp. of New Zealand look drop-dead gorgeous to you? Tell us here.
Post your pitch on Motley Fool CAPS and let the world know what you think: It's fun, it's free, and it just might make you famous.
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