5 Battered, but Worthy, Stocks

Stocks sell off for a reason. Sometimes a stock price declines because the market has efficiently digested new information and appropriately discounted its value. And, sometimes a stock price spikes downward because people panic.

As a group, stocks given the maximum rating of five stars by the 115,000-plus-member Motley Fool CAPS community have had a stellar record. But, not every five-star stock pans out, and some travel a turbulent road to good performance.

So let's examine some five-star stocks with large price declines over the past month. We'll look at some reasons for the decline to see if these battered stocks are worth their stars.

Here are the past month's battered prospects:

Source: Motely Fool CAPS.

Note that these are not recommendations to buy or sell, just interesting companies that deserve a look. So let's check out a few of these in further detail.

Commodity price correction batters metal dealer
Metalico is a small cap scrap metal recycler whose rapid growth rate has been rudely interrupted by the global commodity price correction. Metalico is not the only one hurting. The metal business is highly cyclical, and the global economic slowdown has also pummeled large steel makers like Posco (NYSE:PKX) and Arcelor Mittal (NYSE:MT).

Scrap metal is both cheaper and greener than producing metal from scratch. As the global economic growth trend continues, the demand by developing countries for cheaper sources of metal to fuel their economic growth is positively exploding. Also, demand in the U.S. and other developed economies for cheaper and cleaner sources of raw material should be strong in the future. How strong has Metalico looked in the recent past? Second quarter sales were up 330% from just one year ago.

Prices should eventually rebound as global demand for metal persists. The stock has taken it on the chin because of a sell off in commodity prices aided by the rising dollar and a global economic slow down. While these factors will erode profits in the short term, this could be a nice opportunity to enter the stock at less than eight times earnings.

The recent rich and their gambling
Melco Crown Entertainment operates casinos in Macau. The Chinese coastal community is the most densely populated city in the world and still growing. Tourism is growing to such an extent that the Chinese government enacted visa restrictions to slow the growth.

The city's gaming revenue increased 44% in 2007 and is on a similar track this year. But, Melco stock has been absolutely hammered recently, along with most other casino and Chinese stocks. In addition, Melco shareholders might be spooked by the involvement of the Chinese government. The company should have stellar growth in a hot spot with a bright future. With that potential, it probably still deserves its five stars.

Out of favor, out of luck
U.S. Global Investors is an investment management company that has been beaten up in two ways. First, the bad market and consequential reduced investment activity has dragged its revenues sharply lower. Second, the subprime crisis has soured investors on anything to do with financial services stocks. However, the company remains a well-run investment manager with a solid balance sheet. The company has value at this price and should be an early beneficiary when things turn around.

Final thoughts
Despite the recent difficulties and share price decline these companies have experienced, enough CAPS members still have an outperform rating to give the companies a five-star rating. Sometimes, great values can be found among the steepest one-month decliners.

Do you agree or disagree? After researching these stocks on Motley Fool CAPS, make a call for out- or underperform. Your choice will help determine whether these will continue to rate the five-star accolade. Come join us on CAPS, absolutely free.