With all the volatility in the markets today, there's no shortage of market seers attempting to call a bottom. Bernanke called a bottom not once, but twice. Heck, even Keanu Reeves laid out what a world-ending market bottom looks like.
And investors should be buying near the bottom, when pessimism has unduly beat good companies down to great prices. That's why we here at the Fool -- and 135,000 investors like us -- look to the Motley Fool CAPS community to help sniff out the real opportunities from languishing companies driven by speculation.
Real bottom or another leg down?
Of course, there's no foolproof method of knowing whether any stock, or even the general market, has bottomed out. But CAPS has a great balance of both quantitative and qualitative resources available on 5,300 stocks, and even a nifty stock screening tool to help investors quickly zero in on potential investment opportunities. Then we can use all the information in CAPS to test whether an individual company has already seen its bottom valuation, or has just primed shareholders for further pain.
I've used the CAPS screener to filter out $100-million-plus companies that have seen their stock price appreciate by at least 20% in the past 13 weeks, even while they remain at least 50% below their 52-week high. These stocks also have both a positive return on equity and earnings per share over the last 12 months; this limits the results to companies that have a history of delivering results regardless of stock gyrations. If you'd like, run this screen yourself -- just keep in mind that results may change as the market does.
|
Company
|
CAPS Rating
(out of 5)
|
13-Week
Price Change
|
% Below 52-Week High
|
|
Allied Irish Banks (NYSE: AIB )
|
*****
|
125.4%
|
78.4%
|
|
China Security & Surveillance (NYSE: CSR )
|
*****
|
30.5%
|
55.8%
|
|
Bank of Ireland
|
****
|
106.3%
|
69.1%
|
|
Jackson Hewitt (NYSE: JTX )
|
***
|
39.8%
|
63.2%
|
|
Macerich (NYSE: MAC )
|
*
|
84.2%
|
61%
|
Source: Motley Fool CAPS. Price return from May 15 through Aug. 10.
The bottom case
There are several things in the works that could have Allied Irish Banks looking nowhere but up today. Similar to peer Lloyds Banking Group (NYSE: LYG ) , top Irish bank Allied Irish Banks recently cheered investors when it said it expects the worst of its loan losses will be over this year. The company has also reduced costs and recently added about 1.1 billion euros to its capital base through a bond swap to help it reverse the deteriorating trends that sent its shares down nearly 80% in the past year.
Despite the operational improvement, though, what has investors most excited is the hope that a state-run “bad bank” called National Asset Management Agency (NAMA) will relieve Allied of billions in bad assets. With its shares now sitting at a price-to-book value of around 0.2, the move to contain bad debts could mark a significant turning point for the bank, turning the stock into what many investors believe could be the opportunity of the decade.
Or dead cat in disguise?
Even though Allied Irish Banks shows a lot of promise in a recovery, CAPS members still point out several risks involved with the bank’s financials that warrant caution. Its investments in real estate assets and other bad loans deteriorated significantly in the first half of the year and its Tier 1 capital ratio sits at a riskier 7.8% compared to U.S. banks like US Bancorp (NYSE: USB ) and Wells Fargo (NYSE: WFC ) , at 9.4%, and 9.8%, respectively. It's also not out of the economic woods yet and expects an extremely difficult operating environment to remain this year. Some CAPS members are also waiting out the uncertainty regarding the impact of NAMA on the bank’s shares and balance sheet, noting that there's still a lot of "ifs" built into any turnaround for the bank.
What's your call?
Overall, nearly 97% of the 2,442 CAPS members rating Allied Irish Banks are bullish and see it outperforming the broader market. I have to agree with the majority -- in fact, I already have; I gave Allied Irish Banks the thumbs-up because I see the potential upside outweighing even the high risks that remain. But what ultimately counts is your own opinion -- CAPS is just there to help you form it. The best part is that the Motley Fool CAPS database is all free, and you can add your own insight on any of the 5,300 stocks that our 135,000-plus members have covered -- whether it's related to expired felines or not.
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