This Top Stock Is a Winner

Valuation may be an imperfect science, but it's as important to fantasy football players as it is to investors. Ask anyone who picked up Jerome Harrison last week. Cleveland's third-stringer started against Cincinnati after injuries to Jamal Lewis and James Davis. He rushed 29 times for 121 yards, and caught five passes for 31 yards. 

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 players pick up unloved players for less than market value, and market-beating investors buy oversold stocks for $0.50 on the dollar.

Waiver-wire heroes, unloved stocks ready to rise
These bargain hunters knew that China Green Agriculture (AMEX: CGA  ) was too cheap to ignore last fall. Their ranks include my Foolish colleagues Tim Hanson and Bill Mann, who picked this stock last November for Motley Fool Global Gains. Investors who bought around the same time have since been rewarded.

More bargains are out there. For this weekly column, let's use the Motley Fool CAPS screener to find the stock market's version of waiver-wire heroes like Harrison. 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 that everyone else loves.
  • A 10% or better return on equity (ROE), because we want proof that this stock can play at the level we need it to.
  • A 20% or worse haircut in price over the past year, because we're bargain hunters.

Today's screen returned 31 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

Huntsman (NYSE: HUN  )

(25.9%)

3.2

39.4%

Frontline (NYSE: FRO  )

(22.9%)

7.2

34.8%

Satyam Computer Services (NYSE: SAY  )

(48.1%)

4.5

26.5%

M&F Worldwide (NYSE: MFW  )

(24.0%)

3.5

24.8%

AGCO (Nasdaq: AGCO  )

(22.8%)

8.9

12.7%

General Electric (NYSE: GE  )

(25.2%)

12.0

12.1%

Source: Motley Fool CAPS screen data.

Of these, I'd pick up Huntsman, a chemicals and adhesives manufacturer that has rebounded from summer lows, yet still trades for just three times earnings.

"Good yield, only half way back to its highs. A cyclical stock that should show rewards as the economy recovers, and with the dividend they are paying us to be patient," wrote CAPS investor yaldezian in August, when the stock was trading for $7.50 a share.

There's a lot to like about Huntsman's dividend, which, at 4.60%, yields almost twice that of the S&P 500-tracking SPDR exchange-traded fund. Huntsman has paid dividends consistently since March of 2007, according to Morningstar.

What do you think? Would you give Hunstman a spot on your portfolio roster? Let us know by signing up for CAPS today. It's 100% free to participate.

More bargain basement Foolishness:

China Green Agriculture is a Global Gains recommendation. 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 no fantasy. It's 100% natural, fresh-baked disclosure-y goodness.


Read/Post Comments (4) | Recommend This Article (18)

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 October 08, 2009, at 1:33 PM, Boscobomber wrote:

    I bought Hunstman back earlier this year and have done quite well with my returns both in stock value and dividend reinvestment. Having the $1B settlement put them in the envious position of having lots of cash in a down economy and they are using this to grow. It wouldn't surprise me if HUN gets in the cross-hairs of some cash rich oil company by next year. Consumers need chemicals just like they need gas for their cars and even if they are not a target for acquisition, they are positioning themselves to grow quite nicely in the next couple of years.

  • Report this Comment On October 12, 2009, at 5:22 PM, SeeknDestry wrote:

    I like GE and SAY. GE may not make you rich but I can guarantee it will make you money. Big and diversified, yet still only has a PE ratio of 12? All its sectors will start making money once the recovery kicks in.

    SAY is more of a gamble, but really still a solid company. Undervalued because of that big ordeal earlier this year. Have different management and strong cash flow.

  • Report this Comment On October 16, 2009, at 2:28 PM, bennygut wrote:

    you have to look on forward p/e .

    it is a mistake to use past p/e .

  • Report this Comment On October 17, 2009, at 4:19 AM, devilzadvocate wrote:

    SAY is a good pick. Their financials are still murky and it will take them a little longer to get of the mess of past management. However, they were successful in holding on to most of their major clients during this bad phase and are slowly but surely making new ones..

    It would be more than double in one year.

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