I am always looking for a good deal, whether that means buying an extra box of Golden Grahams when they're 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 (no relation to the cereal) tells us, by way of allegory, how we can look out for these situations.
In The Intelligent Investor, Graham introduces readers to a wacky chap named Mr. Market, whose game is to pay you house calls on a daily basis to offer 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 and offer you premium prices for your holdings, while at other times he'll be inconsolably depressed about the future and will offer 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
(out of 5)
|
|
China Natural Gas (Nasdaq: CHNG)
|
(27.5%)
|
38.8%
|
*****
|
|
Shengdatech (Nasdaq: SDTH)
|
(19.3%)
|
19.9%
|
*****
|
|
Dawson Geophysical (Nasdaq: DWSN)
|
(17.5%)
|
7.9%
|
*****
|
|
Denbury Resources (NYSE: DNR)
|
(13.2%)
|
15.7%
|
*****
|
|
China Medical Technologies (Nasdaq: CMED)
|
(11.4%)
|
(39.9%)
|
*****
|
|
Mueller Water Products (NYSE: MWA)
|
(11.0%)
|
(21.6%)
|
*****
|
|
Allegheny Technologies (NYSE: ATI)
|
(9.2%)
|
41.7%
|
*****
|
Data from Motley Fool CAPS as of Nov. 10.
As the table shows, these stocks are all still very well-regarded by the CAPS community despite their underperformance over the past month. While these are not formal recommendations, they could be a great place to kick off further research. I'll even get you started with some thoughts on Shengdatech.
Why so blue?
If the prospect of watching grass grow excites you, then Shengdatech may just be your cup of tea. A boring, boring cup of tea.
Of course, when it comes to investing, boring can definitely be beautiful, and up until lately that's been true for Shengdatech. The company's primary product is an industrial filler and additive called NPCC -- or nano precipitated calcium carbonate, if you want to impress your friends. NPCC is used in a variety of applications and can take on impressive feats such as making rubber more flexible, giving PVC more heat resistance, and rendering paper whiter. And what's even better is that the company is based in China, so it stands to benefit from great markets there, such as the PVC market and its 22% annualized growth rate between 2000 and 2006.
So if Shengdatech's business has so much promise, why the big sell-off after its earnings announcement on Monday? You can chalk that up to the fact that sales and profit during the quarter fell 49% and 50%, respectively, causing earnings per share to miss analyst targets.
Ugly looking? You betcha.
What the bulls say
But there may just be more than meets the eye. Back in August, my fellow Fool Rick Munarriz pointed out exactly why investors could look at Shengdatech's declining results as an opportunity.
You see, back in October 2008, the company acted on a directive from the Chinese government to shut down operations at its Bangsheng chemical facility, which took a gigantic bite out of the company's operations.
That particular facility, though, was a separate business altogether, and so while Shengdatech had to bid adieu to its coal-based chemicals segment, its NPCC business remains alive and well. And as Rick noted, after the one-year anniversary of the chemical plant closure, the year-over-year comparisons for Shengdatech's numbers should start to look more favorable.
AllStarPortfolio, one of the 1,300-plus Shengdatech bulls on CAPS, rated the stock an outperformer back in September and highlighted the loss of the chemical business as a positive driver, using a pitch from CAPS All-Star caidencollett07:
The nano precipitated calcium carbonate is now their only business; they have ridden themselves of the lower margin coal-based business. This is what has the stock running under the radar.
Their lack of earnings growth is because they cut off 60% of the business, in favor of a fast growing nano precipitated calcium carbonate business. To date their NPCC business has recouped 28% percent of lost earnings from their prior chemical businesses. ... China's growth of the middle class ensures that there will be more roads and tires, which should greatly benefit Shengda Tech. I also believe they should return to earnings growth in the future.
But here's the important question: Do you think the recent drop has created a good buying opportunity? Or will NPCC not be enough to drive Shengdatech forward? Head over to CAPS and share your thoughts with the other 140,000 members. Even if you'd prefer to pass on Shengdatech, you can check out a couple of the other stocks listed above or any of the 5,300 stocks that are rated on CAPS.
More CAPS Foolishness:
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