"I will tell you how to become rich
Close the doors
Be fearful when others are greedy.
Be greedy when others are fearful."
-- Warren Buffett
Can't argue with that, can you? I don't need to remind you of how much fear is in the market these days. However, that fear is creating incredible opportunities for investors patient and diligent enough to search for the babies thrown out with the bathwater.
Using our Motley Fool CAPS ranking system's screening tool, I scanned for bargain companies with the following characteristics:
- Five-star ratings, since these stocks are the best of breed.
- Trailing dividend yields of at least 3%.
- Price-to-book ratios no greater than 1.
- Dreadful performance over the past 26 weeks.
Yes, most stocks currently meet this last condition, but I'm looking for the big crashers. The complete capitulators. The mothers and fathers of all bargains.
Among others, I dug up these five, which have been shredded to such paltry levels that it's hard to keep ignoring 'em:
|
Company
|
26-Week
Price Change
|
Dividend
Yield
|
Price/Book Ratio
|
Price/Earnings
Ratio (TTM)
|
|
Allegheny Technologies (NYSE: ATI )
|
(51%)
|
3.2%
|
0.91
|
3.57
|
|
ArcelorMittal (NYSE: MT )
|
(70%)
|
5.4%
|
0.52
|
2.14
|
|
Copano Energy (Nasdaq: CPNO )
|
(55%)
|
16.2%
|
0.75
|
11.71
|
|
NYSE Euronext (NYSE: NYX )
|
(55%)
|
5.6%
|
0.63
|
7.32
|
|
Tata Motors (NYSE: TTM )
|
(58%)
|
8.3%
|
0.62
|
2.58
|
Data from Motley Fool CAPS and Capital IQ, a division of Standard & Poor's, as of Jan. 22, 2009. TTM = trailing 12 months.
None of these are necessarily recommendations -- just good starting points for you to dig a little deeper. You can rerun an update of this screen yourself, if you like.
What's up with Allegheny?
Shares of specialty-metal producer Allegheny Technologies have been a tragedy in the past year, down almost 70%. And why not? Shares had exploded over the previous few years, more than quintupling in a two-year period as the global boom for anything and everything relating to construction took off.
Now, Allegheny mania has fallen back to earth, along with competitors such as Alcoa (NYSE: AA ) and Titanium Metals (NYSE: TIE ) . This week brought news of a considerable drop in Allegheny's fourth-quarter earnings, which nevertheless trounced analyst expectations for the quarter. The company gave a glum long-term outlook, but even so, average analyst estimates for 2009 still call for earnings of $3.20 per share, putting this battered soul at just around seven times forward earnings.
Accordingly, our CAPS community tends to see this sell-off as nothing but cyclicality at its finest. As member TSIF recently wrote:
Yes, they deal in automotive and defense materials, but...they are a highly diversified company with a solid history of growth. Stable dividends, strong income even this past year. Strong margins, especially ROE. Allegheny has been beaten down, but still maintains strong growth. Insider buying. Strong 14% insider ownership keeping an eye on things. One to own, despite analysts saying "hold"!
With a 0.22 debt-to-equity ratio, things look A-OK on the balance sheet side. Throw in a sizable dividend to boot, and waiting for the global economy to rebound seems like a safe proposition with this one. As pcstuck wrote last month:
This is just one of those companies that has been beaten down by our economic situation. I cant see this stock staying down for very long. Balance sheet looks very solid across the board. Low debt. Decent dividend payout will also help you. Good long term play
Stocks in this industry are notoriously cyclical, going from boom to bust to boom and dizzying the heck out of investors. So how do you value such ambiguity?
Try simply averaging earnings over a long period of time, smoothing out the cycles. Going all the way back to 1994, for example, Allegheny has earned an average of $228 million a year, or the equivalent of $2.04 per share. With that 15-year average, which incorporates everything from spectacular booms to gut-wrenching losses, Allegheny currently trades at conservatively 11 times previous cyclical earnings. Going forward, that could very well amount to a screaming bargain once global growth digs out of its current hole.
Take it away, Fool
Disagree? See it from another angle? Just want to see what the rest of the pack is saying? More than 125,000 investors use CAPS to share ideas and swap opinions. Click here to check it out. It won't cost you a dime.
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