Drop-Dead Gorgeous Stocks

"The idea of buying a former superstar stock at a discount price has its attractions, but you have 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. And 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 farther, and 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:

 

Recent Price

CAPS Rating (Out of 5):

Tongjitang Chinese Medicines  (NYSE: TCM  )

$3.60

****

China Nepstar Chain Drugstore  (NYSE: NPD  )

$6.48

****

China Digital TV  (NYSE: STV  )

$9.28

****

E-House (NYSE: EJ  )

$7.94

****

Fannie Mae (NYSE: FNM  )

$4.85

*

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?
This week's list is a bit of an odd bird. Most of the stocks you see above have shed between 50% and 70% of their value over the past year alone. Most of the companies they represent hail from China. Fannie Mae is the exception in both respects, being based in our nation's capital, and having lost well over 90% of its value. (U.S.A.! U.S.A.! U.S.A. ...?)

With its lowly one-star CAPS rating, clearly we won't be profiling Fannie Mae this week. But the four remaining stocks, while each is rated an above-average four stars, have another quirk -- none of them has been around on U.S. exchanges nearly long enough that they should be on MSN's "5-year-lows" list. In fact, the eldest of the group, Tongjitang Chinese Medicines, is still toddling around in its terrible twos.

Yet here they sit. So let's stir up the analytical equivalent of lemonade-from-lemons and take a gander at the eldest of the group, a "vertically integrated ... specialty pharmaceutical company ... manufacturing, marketing and selling ... modernized traditional Chinese medicine in China." Straight from CAPS members' mouths, here's ...

The bull case for Tongjitang Chinese Medicines 

vladdfool told us in December: 

Traditional [medicine] still large growth sector in China. One of the few supplement companies that invests in definitive clinical trials, and has the potential for FDA approval on liver drug (HUGE market). ... Great metrics as well ... all substantially lower than peers.

 Speaking of which, according to TCM, the "peers" with whom it competes include Pfizer (NYSE: PFE  ) and Sanofi-Aventis (NYSE: SNY  ) .

FlyGuy93021, a year ago, asked that you hold the guffaws: "Regardless what your opinion is of Chinese medicine, it is taken very seriously in China, and among Chinese nationals abroad. They are just beginning to tap a huge market."

And as dennejd added just last May, TCM has:

Lots of cash on the balance sheet, trading at a ridiculously low Price/Book and PEG ratios. In a hot" market. Lots of room to grow. ... Even if there is a China Bust this company has enough cushion to survive a reasonably precipitous drop.

Well said, Fools. And I really have very little to add on this one, because TCM is the proverbial "the numbers speak for themselves" company.

Seriously, when I'm staring down the barrel of a  trailing price-to-earnings ratio of 9.6 and a forward P/E of 1.2, words fail me. This stock is either too good to be true or a lie come to life.

Time to chime in
So which way is it going to be, folks? Do you feel lucky? Come on over to CAPS and tell us whether TCM is going to keel over dead or whether it's drop-dead gorgeous.

Motley Fool CAPS: It's fun, it's free, and it just might make you famous.

Fool contributor Rich Smith owns no shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 681 out of more than 115,000 players. Pfizer has been recommended by both Motley Fool Income Investor and Motley Fool Inside Value. The Fool has a disclosure policy.


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 712915, ~/Articles/ArticleHandler.aspx, 9/19/2014 2:15:25 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement