This Top Stock Is a Winner

Valuation is an imperfect science, but as important a concept to fantasy football players as it is to investors. I should know; I'm among the lucky minority to have started the Giants' Ahmad Bradshaw against the Raiders on Sunday. Brandon Jacobs' speedy backup rushed 11 times for 110 yards and two scores. He also turned a short screen pass into a 55-yard breakaway.

Value is value, whether you're assembling a fantasy team or a stock portfolio. But don't take my word for it. "Before you make any decision -- who to draft, trade, start, and sit -- make sure you are following that basic principle; how risky is this move, does it give me the best chance to win?" writes ESPN fantasy analyst Matthew Berry in his annual guide.

See the parallels here? Winning fantasy players pick up unloved players for less than market value, and market-beating investors buy oversold stocks for $0.50 on the dollar.

Unloved stocks ready to rise
These bargain hunters knew that Netflix's (Nasdaq: NFLX  ) expanding DVD rental market share was worth more than Mr. Market said it was in February. You'll find David Gardner among their ranks; six times he has recommended the stock to Motley Fool Stock Advisor subscribers. Investors who followed David's advice and bought early on have since been rewarded.

More bargains are out there. For this weekly column -- and to borrow a line from Berry, because I'm a company man -- let's use the Motley Fool CAPS screener to find the stock market's version of underrated heroes like Bradshaw. Here's what we're looking for:

  • A minimum $250 million market cap, because we don't draft unsigned free agents.
  • A price-to-earnings (P/E) ratio of less than 12, because we're not interested in players whom everyone else loves.
  • A 10% or better return on equity (ROE), because we want proof that this stock can play at the level we need it to.
  • A 20% or worse haircut in price over the past year, because we're bargain hunters.

Today's screen returned 31 candidates that could be worthy of filling roster spots in your portfolio. These six have track records of superior returns on shareholder equity:

Company

52-Week Price Change

P/E Ratio

ROE

Clayton Williams Energy (Nasdaq: CWEI  )

(24.0%)

3.9

35.2%

Danaos (NYSE: DAC  )

(41.4%)

3.2

20.8%

International Bancshares (Nasdaq: IBOC  )

(32.5%)

9.0

11.8%

Precision Drilling Trust (NYSE: PDS  )

(34.5%)

4.2

11.8%

Republic Airways (Nasdaq: RJET  )

(24.3%)

6.0

10.6%

Eagle Bulk Shipping (Nasdaq: EGLE  )

(44.9%)

3.9

10.4%

Source: Motley Fool CAPS screen data, as of Oct. 12.

Of these, I'd pick up Precision Drilling Trust, a two-time Motley Fool Global Gains recommendation that provides contract drilling and related services to oil and gas explorers in the U.S. and Canada.

The company, based in Calgary, Alberta, has suspended dividend payments to strengthen its balance sheet. As a result of those efforts and a secondary offering, total debt is down $375 million since December. I'm with Global Gains co-advisor Nathan Parmelee on this one: A stronger balance sheet bodes well for growth and future cash distributions once energy prices begin to recover.

Last month, CAPS All-Star Pennyperson wrote: "Revenue has declined but that was anticipated. They made solid management decisions to shore up debt and seek good financing on bridge loans in the middle of the worst credit crisis since the Great Depression. This driller is far from doomed."

What do you think? Would you give Precision Drilling Trust a spot on your portfolio roster? Let us know by signing up for CAPS today. It's 100% free to participate.

Precision Drilling Trust is a Global Gains recommendation. Netflix is a Stock Advisor selection. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers has yet to be named a friend of ESPN's Fantasy Focus podcast. One day, perhaps. Tim didn't own shares in any of the companies mentioned in this article at the time of publication. Check out his portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool.

The Fool's disclosure policy is no fantasy. It's 100% natural, fresh-baked disclosure-y goodness.


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