With all the volatility in the markets today, there's no shortage of market seers attempting to call a bottom. Man of the Year Ben Bernanke called a bottom not once, but twice. Heck, even Keanu Reeves laid out what a world-ending market bottom looks like.
Investors should consider buying stocks after a big decline, when pessimism has unduly beaten good companies down to great prices. That's why we here at the Fool -- and 160,000-plus investors like us -- look to the Motley Fool CAPS community to help sniff out the real opportunities from languishing companies driven by speculation.
A real bottom or another leg down?
Of course, there's no foolproof method for timing a market bottom. But CAPS has a great balance of both quantitative and qualitative resources available on 5,400 stocks, and even a nifty stock screening tool to help investors quickly zero in on potential investment opportunities. Once we've rounded up our candidates, we can use all the information in CAPS to test whether each company has already hit bottom or simply primed shareholders for further pain.
I've used the CAPS screener to filter out $100 million-plus companies that have seen their stock price appreciate by at least 15% in the past 13 weeks even while they remain at least 50% below their 52-week high.
|
Company |
CAPS Rating
|
13-Week |
% Below 52-Week High |
|---|---|---|---|
|
Cornerstone Therapeutics |
**** |
18.8% |
50.2% |
|
MetroPCS Communications |
*** |
19% |
60.1% |
|
Leap Wireless |
** |
16.6% |
58.4% |
Source: Motley Fool CAPS. Results from Jan. 15 through April 12.
The bottom case
While shareholders have had little to cheer about with MetroPCS over the past few years, several recent events gives many investors reason to believe the discount wireless services provider may have finally turned a corner. MetroPCS has continued to grow its business by aggressively marketing its low-cost plans, adding more than 317,000 subscribers in the fourth quarter. The growth in subscribers helped the company pull in fourth-quarter revenue and earnings that blew past analyst expectations and helped it generate positive free cash flow for 2009 -- unlike the prior two years,. The quarter also marked the first time that the prepaid market -- MetroPCS' sweet spot -- grew faster than the contract market in the U.S. wireless industry. MetroPCS has also been expanding its coverage in new and existing markets, and while major carriers like AT&T
Reports have also surfaced that the company and rival Leap Wireless are lining up banking advisors again with an eye toward a merger, which could bring cost savings that help MetroPCS hold up better in the competitive wireless environment.
Or dead cat in disguise?
Yet even though MetroPCS may look spry in a flourishing pre-paid market today, the company still faces fierce competition from others like Sprint Nextel's
With competitor Leap Wireless recently unveiling an even cheaper unlimited nationwide talk and text plan, some question the extent to which prepaid companies can continue to cut prices and still be profitable. Shares of MetroPCS have been hammered over the past year, losing more than 50% of their value, and the company sits on a heavy balance sheet weighed down by more than $3.6 billion in long-term debt, which many investors think give it little flexibility to deal with the brutal market.
What's your call?
Overall, 92% of the 382 CAPS members rating MetroPCS are bullish and see it outperforming the broader market. For my part, I think a merger between MetroPCS and Leap is inevitable, but I still don't favor investing in companies that are racing for the bottom of a market.
But what ultimately counts is your own opinion; CAPS is just there to help you form it. The best part is that the Motley Fool CAPS database is all free, and you can even add your own insight on any of the 5,400 stocks that our 160,000-plus members have covered.
