"I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful."
-- Warren Buffett
Can't argue with that, can you? I don't need to remind you of how much fear is in the market these days. It's a real gut check, but that fear is creating opportunities for investors patient and diligent enough to search for the babies thrown out with the bathwater.
Using our Motley Fool CAPS ranking system's screening tool, I scanned for bargain companies with the following characteristics:
- Five-star ratings -- the highest our CAPS community offers.
- Estimates of profitability in 2009
- Price-to-book ratios no greater than 1.5
- Dreadful performance over the past 52 weeks. Yes, almost every stock meets this condition, but I'm looking for the biggest of the big. The complete capitulators. The mothers and fathers of all bargains.
Among others, I dug up these five, which have been shredded so far it's hard to keep ignoring 'em:
|
Company
|
52-Week
Price Change
|
Price/Book Ratio
|
Recent Price
|
2009 Earnings Estimates
|
|
Arch Coal (NYSE: ACI )
|
(72%)
|
1.14
|
$14.42
|
$1.82
|
|
Portfolio Recovery Associates (Nasdaq: PRAA )
|
(37%)
|
1.45
|
$27.90
|
$3.14
|
|
Transocean (NYSE: RIG )
|
(59%)
|
1.15
|
$62.62
|
$13.40
|
|
UnitedHealth (NYSE: UNH )
|
(43%)
|
1.21
|
$21.07
|
$3.00
|
|
XTO Energy (NYSE: XTO )
|
(50%)
|
1.05
|
$33.12
|
$3.11
|
Data from Motley Fool CAPS and Yahoo! Finance as of April 2, 2009.
None of these are necessarily recommendations -- just good starting points for you to dig a little deeper. You can rerun an update of this screen yourself, if you like.
Waitin' for a rebound
Has the economy finally bottomed out? Everyone wants to know, but really, no one does know.
What we can be assured of, however, is that things will get better eventually. Better yet, a few unique companies will not only emerge from this recession intact, but in better shape than when they entered it. One such company is Portfolio Recovery Associates.
Portfolio Recovery purchases defaulted consumer loans -- primarily those based on credit cards -- that financial institutions have given up on, and pays just a pittance for these assets. Since 1996, it has purchased $39.9 billion in loans for $1.1 billion -- less than $0.03 on the dollar. It then haggles the defaulted consumer for whatever it can shake out of 'em, which has averaged 2.5 to 3 times as much as it pays for the assets. Not too shabby.
Why might it emerge from a recession stronger? Simple:
- Today's environment is a gold mine for distressed assets. The credit-card market, in particular, is seeing an explosion in troubled loans, with companies such as Citigroup (NYSE: C ) and Bank of America (NYSE: BAC ) facing their highest default rates in years. This gives Portfolio Recovery a mountain of possibilities to dig through.
- Once the economy, employment, and asset levels begin to perk up, consumers have fewer excuses to keep defaulting on loans. This ups Portfolio Recovery's chances of collecting cash on the assets it's acquiring now.
CAPS member PaddingFool shares similar feelings about this scenario playing out, writing:
People are in debt with their houses, their cars, their credit cards. And with the economy in such bad shape and the specter of job losses coming over the horizon. [Portfolio Recovery] is in a position now to buy up loads and loads of debt and super low prices. Virtually any cash recovery at all will bring them good profits.
On the valuation front, this isn't an expensive stock by any definition. After a 37% fall in the past year, shares now trade for around nine times forward earnings. With unique potential once consumer health rebounds -- and given that it historically trades at considerably higher multiples -- this might be one of the few financial stocks worth looking at these days.
Your turn to chime in
What do you think about Portfolio Recovery? Is it too soon to even think about any finance stocks? More than 130,000 investors use CAPS to share ideas and swap opinions. Click here to check it out and speak your mind. It's 100% free to participate.
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