I'm always looking for a good deal, whether that means buying three boxes of Frosted Flakes when they go on sale, or pouncing on undervalued stocks. The idea that anybody would sell a stock for less than it's worth may seem silly. But legendary value investor Ben Graham tells us, by way of allegory, how we can look out for these situations.
In The Intelligent Investor, Graham introduces readers to a crazy guy named Mr. Market. Mr. Market's game is to pay you house calls on a daily basis, offering to sell you interests in businesses he owns, or to buy from you interests in businesses you own. Sometimes Mr. Market will show up at your door very excited, offering you premium prices for your holdings. At other times, he'll be totally depressed about the future, and he'll offer to sell you what he has for as low as pennies on the dollar.
To find some of the stocks that Mr. Market is depressed about, I've turned once again to The Motley Fool's CAPS investor community. Each of the companies below had been given a five-star rating (the highest) by our community of investors just 30 days ago:
|
Stock |
30-day return |
One-year return |
Current CAPS rating |
|---|---|---|---|
|
Jupitermedia |
(26.7%) |
(63.3%) |
|
|
Kongzhong |
(19.9%) |
(41.5%) |
|
|
Grupo TMM |
(18.3%) |
(40.6%) |
|
|
Supertex |
(18.3%) |
(8.5%) |
|
|
Mindray Medical |
(16.3%) |
N/A |
|
|
USG Corp. |
(16.3%) |
(48.0%) |
|
|
Exploration Co. of Delaware |
(16.3%) |
(20.8%) |
As the table shows, these stocks are all still very well-regarded by the CAPS community despite their underperformance over the past month. While these are not formal recommendations, they could be a great place to kick off some further research. I'll even get you started with some thoughts on Kongzhong.
When does the pain end?
So far this year, it's been a bumpy ride for shareholders of the Fool's Best Small Cap for 2007, Kongzhong. Since Kongzhong showed its face on my "stocks on sale" list at the beginning of last month, it managed to run up 13%, only to get beaten back down 21%. There were a couple factors at play here.
On Feb. 27, the U.S. markets reverberated in the wake of the Shanghai market dropping 8.8%. Chinese stocks were naturally hurt the worst in the sell-off, and Kongzhong shed 6.1% that day alone. It sure wasn't alone, though -- that same day, competitor TOM Online also lost 7.6%.
After that single-day market splat, Kongzhong reported its fourth-quarter earnings. They ended up beating both the company's internal estimates and Wall Street's estimates, but the stock fell, likely in response to declining revenue and profit for the fourth quarter on both a year-over-year and sequential basis.
Full-year results showed strong revenue growth and much lower, though positive, net income growth. It's important to note that 2006's results do not reflect a full year, since the new regulatory changes have affected the operating environment (and given the Chinese wireless value-added service providers significant headaches).
CAPS sentiment on the stock has taken a hit after all this, and Kongzhong has dropped from a five-star rating to four. Positive views on the stock still continue to dominate, with 957 outperform rankings to just 32 underperforms, but over the past few weeks, there have been a number of CAPS All-Stars giving Kongzhong the big red thumb.
On the bull side of the table, cjwilks was positive on the company's previous financial performance and sees potential for Kongzhong's Kong.net portal. He also provides a good reminder for investors:
"Don't just go buy this stock because of what I say or what The Fool says. It's a small-cap, which means it's volatile. If you have no idea what constitutes a good price then you'll panic-sell (which is what has been happening ever since it got on Fool's Best of 2007 list). Look at the balance sheet and cash flow numbers yourself before buying."
Zikar, who is also positive on Kongzhong, still sees a good market environment for the company.
"The cell phone user population is booming in China, and even a meltdown of the Asian market won't be able to stop people from a) being born and b) buying massive amounts of [junk]."
Meanwhile, bears have been seeing more downside risk ahead. Calegro offers:
"With the US on the verge of a recession, I'm switching to conservative plays. I would rate Kongzhong as a high risk stock. It is at the mercy of both the Chinese regulators and the world's most dominant Telco, China Mobile. There's nowhere to go but down from here."
So now it's your turn to weigh in -- do you think that Kongzhong can deliver on its high-star promise? Head on over to CAPS and share your thoughts with the other 25,000 players currently part of the community. Even if you'd prefer to pass on Kongzhong, you can check out a couple of the other stocks listed above -- or any of the 4,200 stocks rated on CAPS.
For more CAPS coverage:
Fool contributor Matt Koppenheffer owns shares of USG, a Motley Fool Inside Value choice, but does not own shares of any of the other companies mentioned. You can check out Matt's CAPS portfolio here, or tune in to his CAPS blog here. TOM Online is a Stock Advisor pick. The Fool's disclosure policy knows exactly what Willis was talking about.
