This Top Stock Is a Winner

Valuation is an imperfect science, but it's as important a concept to fantasy football players as it is to investors. Ask anyone who picked up Mario Manningham, a relatively unknown player, off the waiver wire last week. The Giants' second-year receiver impressed a national audience with 10 catches for 150 yards and a touchdown in a 33-31 victory over the Cowboys.

Value is value, whether you're assembling a fantasy team or a stock portfolio. But don't take my word for it. "Before you make any decision -- who to draft, trade, start, and sit -- make sure you are following that basic principle; how risky is this move, does it give me the best chance to win?" writes ESPN fantasy analyst Matthew Berry in his annual manifesto.

See the parallels here? Winning fantasy football involves picking up unloved players for less than market value, while market-beating investors buy oversold stocks for $0.50 on the dollar.

Waiver-wire heroes, meet unloved stocks ready to rise
These investors knew that Omniture (Nasdaq: OMTR  ) was being dumped last year, when it should have been prized -- and they've since been rewarded.

More bargains are out there. For this weekly column -- and to borrow a line from Berry, because I'm a company man -- let's use the Motley Fool CAPS screener to find the stock market's version of waiver-wire heroes like Manningham. Here's what we're looking for:

  • A minimum $250 million market cap, because we don't draft unsigned free agents.
  • A price-to-earnings (P/E) ratio of less than 12, because we're not interested in players everyone else loves.
  • A 10% or better return on equity (ROE), because we want proof that these stocks can play at the level we need them to.
  • A 20% or worse haircut in price over the past year, because we're bargain hunters.

Today's screen returned 115 candidates that could be worthy of filling roster spots in your portfolio. These six possess a track record of superior returns on shareholder equity:

Company

52-Week Price Change

P/E Ratio

ROE

PotashCorp (NYSE: POT  )

(36.9%)

11.9

45.8%

Petroleum Development (Nasdaq: PETD  )

(60%)

2.1

27.2%

Transocean (NYSE: RIG  )

(30.6%)

6.9

23.9%

Patriot Coal (NYSE: PCX  )

(59.5%)

4.6

19.9%

China Medical Technologies (Nasdaq: CMED  )

(51.8%)

1.2

14.4%

Cincinnati Financial (Nasdaq: CINF  )

(21%)

10

10.2%

Source: Motley Fool CAPS screen data.

Of these, I'd pick up Petroleum Development. Any stock that trades for a measly two times earnings is either a) ridiculously underpriced, or b) about to implode. Petroleum Development isn't about to implode, according to CAPS investor LEGMAKER in a May blog post:

[Petroleum Development] saw an increase of production for 2007 of 65%. Their reserve replacement rate was 1397% over the same period. Proven reserves increased by 112%. Their CEO has stated that they will continue to increase these reserves both through the drill bit and by acquisitions.

Petroleum Development's recent numbers are equally interesting. Return on equity rose to 32.6% over the trailing 12 months, up from 25% for 2008 and 8.8% in 2007. Net debt has risen dramatically over the last few years, but it currently remains a respectable 47% of total capital. And there's also that ridiculous multiple to consider.

Still, that's just my take. What do you think? Would you give Petroleum Development a spot on your portfolio roster? Let us know by signing up for CAPS today. It's 100% free to participate.

Omniture is a Motley Fool Stock Advisor selection. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers has yet to be named a friend of ESPN's Fantasy Focus podcast. One day, perhaps. Tim didn't own shares in any of the companies mentioned in this article at the time of publication. Check out his portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool.

The Fool's disclosure policy is 100% natural, fresh-baked disclosure-y goodness.


Read/Post Comments (5) | Recommend This Article (20)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 23, 2009, at 4:09 PM, SteveKowalski wrote:

    I have owned this stock after the news in Auguest when they sold some shares to raise some cash, hey it is better than getting more debt! And selling the shares made buying the stock more desirable after the fact. I am now already up 35%

    The reason the stock is so low is that it is 88% NG and 12% oil, Natural gas prices are so low so earnings at the moment may be low until NG prices pick up, then sky is the limit. If NG stays low it may not do too well in the future. NG can't be dirt cheap forever

    Basically all the big NG companies have been bought up in anticipation of NG prices coming up, this one has been overlooked a bit due to its small cap status, fundamentally it is undervalued and will go up several hundred percent once NG gets a bit more pricy

  • Report this Comment On September 23, 2009, at 9:17 PM, DoWeUnderstand wrote:

    Anything in China is high risk. I would not put a penny in stock in the Chinese market.

  • Report this Comment On September 23, 2009, at 10:35 PM, SteveKowalski wrote:

    Be sure to also check out "DBLE"

  • Report this Comment On September 24, 2009, at 1:56 PM, marcmccutcheon wrote:

    Not so sure Petroleum Development is all that hot. Their thing is natural gas, which is being held in reserve at extremely high volume right now, due to depressed prices while simultaneously production is continuing at an unsustainable pace, adding to the reserve and depressing prices further. The government stats on reserves and prices are not at all promising for at least the next two years. Don't rush into this one. There's a reason PETD's price is seriously dipping.

  • Report this Comment On September 25, 2009, at 8:53 AM, foolforgems wrote:

    What kind of garbage is this?? CMED doesn't have a p/e of 1, nor does PETD have a P/E of 2. You need to check your facts prior to pumping out this kind of propaganda.

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