I'm always looking for a good deal, whether that means buying an extra box of Frosted Flakes 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 tells us, by way of allegory, how we can look out for these situations.
In The Intelligent Investor, Graham introduces readers to a wacky guy named Mr. Market. Mr. Market's game is to pay you house calls on a daily basis, aiming 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, offering you premium prices for your holdings. At other times, inconsolably depressed about the future, he'll 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 |
|---|---|---|---|
|
Terex |
(27.4%) |
(36.3%) |
***** |
|
Harris |
(26%) |
(9.9%) |
**** |
|
Vimpel Communications |
(20.8%) |
35.2% |
***** |
|
Valero Energy |
(20.6%) |
(44.9%) |
**** |
|
PACCAR |
(19.7%) |
(23.7%) |
***** |
|
Corning |
(17.3%) |
(10.8%) |
***** |
|
EMC |
(16%) |
(19.1%) |
***** |
Data from Motley Fool CAPS as of July 1.
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 some further research. I'll even get you started with some thoughts on Valero.
Why so blue?
Wait a second, Valero's a familiar name -- isn't it one of the companies selling us $4-a-gallon gasoline? And on top of that, isn't it the largest oil refiner in North America? What gives?
While both are true, the booming price of oil hasn't been good for everyone along the supply chain. Fast-rising prices have forced refiners to pay more for their crude feedstocks, while giving them less room to raise prices on the refined-product end. The collapsing price spread between the crude they buy and the refined product they sell -- also known as the crack spread -- has meant that the refiners' financials have produced a very different picture than energy players farther up the supply chain.
Though many have stuck by the refiners, a growing wave of investors has started to back away, fearing that high oil prices will be sticky, and refiners will continue to suffer.
What the bulls say
In case you hadn't already heard, New Kids on the Block have gotten back together to plan a new album and an international concert tour. Why bring this up here? Well, it's a good reminder that some things you thought you'd never hear about ever again -- like NKOTB or falling oil prices -- have a tendency to come back into your life when you least expect it.
So while many investors are getting used to possibly perpetual high oil prices, there is a possibility that we will end up seeing oil take a tumble at some point. Yes, yes, I know, the price for oil is being driven by fundamental supply and demand forces, and perhaps even speculators. But you can go ahead and paint me skeptical that fundamental market forces have led to the one-year 100% price spike that we've had. And when oil prices do start to soften up, assuming that happens, refiners will finally be able to capture crack spreads more in line with what they've had in the past.
CAPS All-Star TMFSinchiruna has been riding Valero through part of its recent slide, but still thinks that the outlook for the company is good in both the medium and longer-term. Here's an excerpt:
Though refiners have been squeezed a bit by declining margins recently, the price they charge for their product, gas, will soon go up in step with the recent bump in crude oil. Gas prices were held down to get Americans fully used to $3 gas before beginning a short march to $4. Margins will thus improve to prior levels, and [Valero] will shoot back toward $80 and beyond.
So do you think the recent drop has created a good buying opportunity? Or is there more downside ahead? Let the community know what you think -- head over to CAPS and share your thoughts with the other 110,000-plus players currently part of the community. Even if you'd prefer to pass on Valero, you can check out a couple of the other stocks listed above, or any of the 5,500 stocks currently rated on CAPS.
More CAPS Foolishness:
