"The idea of buying a former superstar stock at a discount price certainly has its attractions, but you've got 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," where I run the 52-week-lows list compiled by Nasdaq.com through the wisdom-of-crowds meter we call Motley Fool CAPS. 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 that have plummeted even farther? Perhaps. If a stock that's fallen for one year straight has headroom, then maybe a stock that's fallen farther and longer has room to soar back even higher -- in which case, a left-for-dead stock could offer us a drop-dead gorgeous entry price.
We'll test that thesis today, starting with five stocks that just hit their five-year lows:
| Company |
Recent Price
|
CAPS Rating
(5 max):
|
|
Apex Silver Mines (AMEX: SIL )
|
$7.99
|
****
|
|
Royal Bank of Scotland (NYSE: RBS )
|
$5.47
|
**
|
|
JetBlue (Nasdaq: JBLU )
|
$4.11
|
**
|
|
US Airways (NYSE: LCC )
|
$4.08
|
*
|
|
Colonial BancGroup
|
$5.79
|
*
|
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?
Each of these stocks has shed at least 50% of its market cap over the past year -- why, US Airways is down nearly 90%. Wall Street's left 'em for dead, and Main Street investors greet these stocks with the affection ordinarily reserved for roadkill -- all of them but one, that is.
Although its stock is currently heading way, way down, investors still think Apex Silver Mines can turn things around. To learn why, let's turn our headlamps on what they're saying about it on CAPS:
The bull case for Apex Silver Mines
It turns out Fools aren't saying much of anything about Apex Silver. For the most part, investors appear to be using the stock as a proxy for silver prices in general. Witness goofypicker, who wrote in March:
Many [silver] speculators are panicing and claiming that this is the end of the "commodity bubble". I don't think so. If you look at the fundamental reason behind the last 6 months rise in precious metals. ... The Fed continues to pump liquidity into the market, the interest rate continues to decline, inflation continues to increase and the dollar continues to fall.
Echoing the point, papajones62 wrote (also in March): "As the US dollar weakens, silver will increase. Companies who are dealing in silver and other minerals will profit."
Finally, if you'll turn in your syllabi from Macroeconomics 101 to Mineralogy 301, our next lecture comes from CAPS All-Star darkflame, who advises:
as a sort of scientist ... I know a few things about silver, which are far more interesting than SIL itself. ... Silver is a misterious chemical element that is made in the supernova stars, that means that Silver can't be made in [our] planet like fossil fuels and not even in the Sun such as other elements like carbon and oxygen. In fact Silver is older than the Sun and the amount is limited, really limited. As we digged all the Silver that was easy to dig, every new ounce of it will be harder and harder to get and unlike fossil fuels that can be replaced by what in the future will be cheap energy, Silver can't ever be replaced. Silver mines should have a shiny future, as long as you don't pay too much for it. Remember this 'don't overpay'.
But is $8 a share "overpaying" for silver? Well, consider: By the end of last year, Apex Silver reported proven and probable reserves of 443 million ounces of silver. At today's spot price for the metal ($17 and change), that works out to $7.7 billion in asset value for Apex's silver alone, with the company's zinc and lead reserves coming gratis.
Meanwhile, the entire company itself can be had for a market cap of less than half a billion dollars. Or if you prefer, $1.06 per ounce for its silver reserves. In comparison, peer silver miner Pan American Silver (Nasdaq: PAAS ) sells for more than $12 per proven and probable ounce. Silver Standard Resources (Nasdaq: SSRI ) and Silver Wheaton (NYSE: SLW ) both fetch about $9.50 per ounce.
Granted, none of these three carries anywhere near the debt load that Apex bears (although Silver Wheaton does have quite a bit). And Apex has been mostly unprofitable in the past few years. But comparing market cap to silver reserves, Apex is still valued at just a fraction of what its peers are valued at. This suggests that gold may not be the only thing glittering around here. This silver stock is looking bright and shiny, too.
Time to chime in
Of course, the aim of this column isn't just to tell you what I think about Apex Silver Mines -- or what other CAPS players say. We really want to hear your thoughts. Is there a reason investors fear to pay up for Apex? Click on over to Motley Fool CAPS and tell us what you think.
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