Surprises are part of the game when it comes to picking stocks. Take the Dow's 400-point drop earlier this week. There had been some chatter about the U.S. markets having been on a pretty long uninterrupted winning streak, but who figured on a 9% drop in the Chinese markets?
And so it goes with expectations.
We see it all the time during earnings season as companies play the "meet, beat, or miss" game. When a company reports earnings that were more or less than investors and analysts expected, the market reacts to the news and tweaks the price of the stock -- sometimes rather violently. And since trying to predict earnings a quarter from now or a year from now is an extremely challenging task, it's a good policy for investors to expect that expectations are generally wrong.
I'm turning once again to The Motley Fool's CAPS community, where investors from all walks of life can weigh in with their thoughts on more than 4,000 stocks, and I've come up with a handful of unloved stocks that have been defying naysayers over the past month. Each of the companies below had been given a one-star rating (the lowest) by our community of investors just 30 days ago:
|
Stock |
30-day return |
One-year return |
Current CAPS Rating (out of five) |
|---|---|---|---|
|
Steel Technologies |
57.9% |
7.1% |
|
|
Movie Gallery |
23.3% |
49.7% |
|
|
Uranerz Energy |
33.0% |
N/A |
|
|
Medis Technologies |
38.4% |
(4.6%) |
|
|
Compania Anonima Nacional Telefonos de Venezuela |
21.5% |
4.1% |
|
|
Sirva |
16.8% |
(53.7%) |
|
|
Overstock.com |
20.0% |
(20.5%) |
The question with these stocks: Are they better than CAPS players had thought, or are they are just singing that proverbial swan song? At first blush, they may seem like great short candidates, but the best way to get a feel for where these guys are headed is to dig in and do some research. I thought I'd kick you off with some thoughts on one of these stocks: Compania Anonima Nacional Telefonos de Venezuela (CANTV).
I singled out CANTV because it was on my roundup of five-star stocks that took a tumble earlier in the year. What happened to CANTV that plunged it from underperforming five-star to outperforming one-star? Hugo Chavez, that's what.
Chavez, Venezuela's unpredictable president (who wouldn't exactly fall under the category "friend of capitalism"), announced in early January that he wanted to nationalize a number of companies he saw as vital to Venezuela's future. One of them was CANTV, in which both U.S. investors and U.S.-based Verizon owned a stake. The possibility that Chavez wouldn't pay one red cent to any of the CANTV shareholders sent the stock plummeting nearly 40% in the course of two days.
While the correction may have showcased the speed at which the market incorporates new information and adjusts prices, the performance since then has also highlighted the market's penchant for overreaction. It has become clear that Chavez will be shelling out some Venezuelan oil money to the holders of CANTV, and the stock has shot up 50% in the month since it hit its low. Yes, Frosty the Snowman is about as likely to survive a dinner party at Lucifer's house as Chavez is to pay a premium for CANTV, as is typical in buyout deals. But the prospect that he'll pay even a reasonable price for it is much better than the pessimistic scenario that Wall Street had clearly priced into the stock.
At this point, the fate of CANTV falls in the realm of special-situation investing, and it will depend more on the whims of a dude who clearly does not like the way the U.S. does things than on any company fundamentals.
The CAPS community continues to actively follow CANTV, and there have been 45 new CAPS ratings on the stock since the beginning of February. The bears are still ruling the roost with an almost 2-to-1 ratio. Despite this debacle, CAPS players seem to retain a decent outlook for other stocks that do business in Venezuela, including gold miner and three-star-rated Crystallex, a Canadian-based company with its big mines in Venezuela.
Do you think there's still the potential for a drastic change in the CANTV situation? Head over to CAPS and let the community know what you think. While you're there, you can start your research on any of the other stocks listed above -- or any of the 4,000-plus stocks on CAPS.
More CAPS Foolishness:
Fool contributor Matt Koppenheffer didn't see these particular moves coming, but he's rarely surprised at Mr. Market's general tomfoolery. You can check out Matt's CAPS portfolio here, or visit his blog. He does not own shares of any of the companies mentioned. Overstock is a former Rule Breakers pick. The Fool's disclosure policy is here to provide the comforting hugs of certainty in our world of the unexpected.
