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. Mr. Market's 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.
So 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)
|
|
Dynamic Materials (Nasdaq: BOOM )
|
(17.5%)
|
38.3%
|
*****
|
|
Suncor Energy (NYSE: SU )
|
(16.3%)
|
49.6%
|
****
|
|
Quality Systems (Nasdaq: QSII )
|
(16.2%)
|
45.4%
|
*****
|
|
Joy Global (Nasdaq: JOYG )
|
(14.6%)
|
134.6%
|
****
|
|
Western Refining (NYSE: WNR )
|
(14.5%)
|
(61.8%)
|
*****
|
|
Applied Materials (Nasdaq: AMAT )
|
(14.1%)
|
30.8%
|
****
|
|
Tata Motors (NYSE: TTM )
|
(12.7%)
|
307.8%
|
*****
|
Data from Motley Fool CAPS as of Feb. 3.
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 Motley Fool Hidden Gems recommendation Dynamic Materials.
Why so blue?
I used to be a fan of the Yahoo! Finance message boards. It was an unhealthy addiction -- comparable to not being able to yank your gaze away from a car wreck.
One thing I could count on from those message boards, though, was that if a stock ever moved one way or another without any significant news, somebody would inevitably start the chant of "somebody knows something." As in, somebody has gotten their hands on information that the rest of the market isn't privy to and they're selling like crazy as a result.
With no significant recent news, then, the big drop for Dynamic Materials' stock over the past month must mean that somebody knows something, right?
Probably not. What I figured out pretty quickly is that 99 times out of 100, the "somebody knows something" chant was total and complete malarkey. There are myriad reasons a stock might make a significant move without any news, but the important thing for any fundamentals-focused investor to remember is that when the business hasn't changed, but the price gets lower, the stock gets ... what's that word? Oh yeah, cheaper.
What the bulls say
The recession has been pretty ugly for Dynamic Materials, and if analysts' estimates are accurate, the company will end up reporting full-year 2009 earnings per share down a cool 63% from the prior year.
This is, of course, the kind of thing that happens to cyclical companies when they find themselves in the midst of a downturn. The flip side is that analysts currently expect the company will be a big beneficiary of the budding economic recovery and will nearly double EPS between 2009 and 2011. And with growing end-markets around the world (roughly 65% of the company's sales are to customers outside the U.S.) it seems likely that the growth will continue beyond 2011.
CAPS members have been a bullish bunch when it comes to Dynamic Materials; the stock is rated a perfect five stars. Among the 1,523 CAPS members who have given Dynamic Materials' stock a thumbs-up is CAPS All-Star dhabluetzel, who rated the stock an outperformer back in late 2008 on long-term demand for its products:
Providing corrosion protection cladding for base metal sheets is in demand in industry. Many processes utilise highly corrosive chemicals to join polymers to produce raw plastic for industry. The oil patch also uses these end products (clad metal ) in the construction of refineries which are going to have to be built to keep up with demand and replace existing ageing plants.
But here's the important question: Do you think the recent drop has created a good buying opportunity? Or will Dynamic Materials' stock continue to struggle? Head over to CAPS and share your thoughts with the other 145,000 members. Even if you'd prefer to pass on Dynamic Materials, you can check out a couple of the other stocks listed above or any of the 5,300 stocks that are rated on CAPS.
Warren Buffett has offered a lot of advice over the years, but could this be his best advice ever?
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