I'm always looking for a good deal, whether I'm buying an extra box of cereal on sale, or pouncing on undervalued stocks. The idea that anybody would sell a stock for less than it's worth may seem silly, but legendary value investor Ben Graham tells us, by way of allegory, how we can look out for these situations.
In The Intelligent Investor, Graham introduces readers to a wacky guy named Mr. Market. He pays you house calls on a daily basis, attempting to sell you interests in businesses he owns, or to buy from you interests in businesses you own. Sometimes, Mr. Market will show up at your door very excited, offering you premium prices for your holdings. At other times, he'll be totally depressed about the future, offering to sell you what he has for as low as pennies on the dollar.
To find some of the stocks that Mr. Market is depressed about, I've turned once again to The Motley Fool's CAPS investor community. Each of the companies below had been given a five-star rating (the highest) by our community of investors just 30 days ago:
|
Stock
|
30-Day Return
|
One-Year Return
|
Current CAPS Rating
|
|
Flotek Industries (AMEX: FTK )
|
(27.5%)
|
186.5%
|
*****
|
|
Cogent (Nasdaq: COGT )
|
(26.2%)
|
9.9%
|
****
|
|
Cognizant Technology Solutions (Nasdaq: CTSH )
|
(25.4%)
|
(16.3%)
|
*****
|
|
Ceradyne (Nasdaq: CRDN )
|
(24.1%)
|
16.4%
|
*****
|
|
Immucor (Nasdaq: BLUD )
|
(21.1%)
|
13.5%
|
****
|
|
Portfolio Recovery Associates (Nasdaq: PRAA )
|
(20.8%)
|
(11%)
|
*****
|
|
ViroPharma (Nasdaq: VPHM )
|
(20.1%)
|
(41.2%)
|
****
|
Data from Motley Fool CAPS as of Nov. 6.
As the table shows, these stocks are all still very well-regarded among the CAPS community, despite their underperformance over the past month. These are not formal recommendations, but they could be a great place to kick off some further research. I'll even get you started with some thoughts on Ceradyne.
How bulletproof is Ceradyne?
We're right in the middle of earnings season, and that means stocks are jumping and diving on future projections and news of beating and missing earnings. Alas, Ceradyne's third-quarter earnings report and fourth-quarter earnings guidance landed its stock squarely in the doghouse.
For the quarter, Ceradyne -- which makes ceramic products, including body armor -- reported $1.16 in profit per diluted share, down from the prior year and $0.20 below Wall Street estimates. On top of the current quarter's miss, the company said earnings for the full year would fall at the lower end of the previously announced range of $5.20 and $5.40.
But is all lost? Hardly. The biggest contributor to the year-over-year profit decline for Ceradyne was $3.2 million of research and development expenses spent working on two new products: the BULL combat vehicle and XSAPI body armor. Additional expenses during the quarter also came from closing two acquisitions. Thanks in part to these growth initiatives, the company announced that it could see earnings per share as high as $6.65 per fully diluted share in 2008, a figure that would represent earnings growth of 28% over the low end of this year's earnings range.
On CAPS, Ceradyne bulls abound. CAPS player bjova said that "under 60 [Ceradyne] is a screaming buy." Avalon02, one of the many CAPS All-Stars who are bullish on the stock, further extolled:
The profit history is good, and the thing that caught my eye was the niche it had made in an otherwise mature and competitive industry. The downside is, of course, the fickle government purchasing contracts. [Ceradyne] has a good technological edge, and with some good R&D, I think they can expand that niche to withstand the [government's] gyrations.
So has the recent drop created a good buying opportunity? Or is there more downside ahead for the stock? Let the community know what you think -- head over to CAPS and share your thoughts with the other 73,000-plus players who are already part of the community. Even if you'd prefer to pass on Ceradyne, you can check out a couple of the other stocks we've discussed here -- or any of the 5,000 stocks that have ratings on CAPS.
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