Financial websites have given investors more tools than ever to screen the markets for stock ideas. But those screens provide only the raw numbers -- not the stories behind them. What looks like the start of a trend could be merely a one-time blip.
Let's enlist Motley Fool CAPS to color in the outlines these numbers create.
To find the cream of the crop of contrarian stocks -- those combining strong fundamentals with pessimistic sentiment -- we'll screen for stocks with:
- A market cap of at least $500 million.
- A total debt-to-equity ratio of less than 0.5.
- A short interest ratio of greater than 10.
- A projected five-year earnings-per-share growth rate of at least 15%.
- A forward price-to-earnings ratio of less than 25.
Then we'll tap the collective intelligence of our 79,000-plus CAPS investors to see whether these companies present real opportunities -- or whether they're priced beyond reason.
Opinions with the numbers
Here's a sampling from the list of stocks our screen pulled up today.
|
Company |
EPS Growth Rate |
CAPS Rank (out of 5) |
|---|---|---|
|
Amedisys |
18% |
***** |
|
II-VI |
20% |
***** |
|
Orbital Sciences |
17.5% |
**** |
|
Wipro |
22.9% |
**** |
|
CarMax |
17.8% |
*** |
|
Big Lots |
16.7% |
* |
Laser brain
You wouldn't expect too many stocks with consistent, long-term growth to show up on a contrarian list, but of the nearly 30 million shares that precision optics specialist and Motley Fool Hidden Gems recommendation II-VI has outstanding, 1.7 million are being shorted. Some of the pessimism aimed at the laser maker comes from slowing growth: Although the company is projected to grow earnings at a 20% clip, that's far lower than the 39% rate at which it has grown net income annually over the past five years.
As with any successful company, there's a laundry list of items that could go south and put a drag on earnings. In II-VI's case, investors seem to be particularly concerned that rising competition and raw-material costs -- which bumped up 21% in the most recent quarter -- will eat into the bottom line.
Yet while the company trades at a not-so-cheap forward P/E of around 18, experienced management maintains a high level of ownership. II-VI has also been making acquisitions to solidify its market position against competitors. The II-VI team has faced similar hurdles over the past three decades, yet has managed to grow the company profitably and drive dramatic returns for shareholders, so I'll side with the overwhelming majority of CAPS investors -- 1,031 of the 1,046 rating the company -- who vote for it to outpace the S&P going forward.
Big loss or big bargain?
Not every contrarian pick enjoys high acclaim in CAPS, however, as the one-star ranking for bargain retailer Big Lots shows. Shares of the closeout retailer have fallen nearly 50% in the past three months as consumer sentiment wanes in the face of more housing defaults and rising credit costs.
With other bargain retailers such as Dollar Tree and Family Dollar also showing distress, Big Lots has company in the sluggish sales department. Even leading discount retailers Target
Still, true contrarians love to see this kind of pessimism. Although there may not be blood in the streets just yet, investors would be wise to watch the retail space. Depending on the economy in general, they may not serve up any of the best stocks of 2008, but they could be long-term winners for bargain-minded investors.
Let 79,000 investors be the judge
The collective wisdom of a huge pool of investors quickly adds color to a whitewashed page of numbers. But even with an entire community of qualified opinions acting as the judge, individual investors are still the jury and should perform their own research.
Want to see your favorite screen results getting run through the CAPS wringer? It's free to tap the knowledge base and even give your own opinion in Motley Fool CAPS.
