I am always looking for a good deal, whether that means buying three boxes of Cinnamon Toast Crunch when it goes on sale or pouncing on undervalued stocks. The idea that anybody would sell a stock for less than its 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 to offer 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 and offer you premium prices for your holdings, while at other times he'll be totally depressed about the future and will offer to sell you what he has for as low as pennies on the dollar.
So 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 |
|---|---|---|---|
|
First Marblehead |
(18.8%) |
19.9% |
***** |
|
Silicon Motion Technology |
(10.2%) |
49.3% |
***** |
|
Penford |
(9.3%) |
16.4% |
**** |
|
Severn Bancorp |
(8.3%) |
(8.1%) |
***** |
|
Nevsun Resources |
(7.0%) |
(34.4%) |
***** |
|
Stanley |
(6.5%) |
NA |
**** |
|
Toyota Motor |
(5.9%) |
8.5% |
***** |
As the chart 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 First Marblehead.
Sallie's shocker
Imagine my surprise when Hidden Gems pick First Marblehead showed up on this list for the second time in the space of a few months. After a spectacular 2006, the stock has had a rough go of it in the first part of 2007. After peaking at around $57 in January, it has been sliced by the market and can now be picked up for $35.
Hidden Gems subscribers who nabbed the stock when advisor Bill Mann singled it out in March of last year are still up 50%, but for the rest of the investing world, the question is whether the stock is back in buying territory again.
For those not familiar with the company, First Marblehead works with banks on private student loan programs primarily for undergrad, graduate, and professional education. The company works on a fee basis for its services, which include loan program design, application processing, and loan securitization. Key to First Marblehead's success is the proprietary database the company maintains, which tracks 20 years of student loan performance.
The company has been facing storm clouds recently, as Washington has turned its eyes to student loans and is intent on reforming the industry. Added concerns have come from the ongoing investigation by New York Attorney General Andrew Cuomo, who is taking a hard look at the relationships between private lenders and universities.
Besides putting a pall over the industry in general, it's questionable what direct effect the above will have on First Marblehead. The proposed buyout of SLM Corp. (aka Sallie Mae), however, hit Marblehead investors where it hurts. The planned buyout would give both JPMorgan and Bank of America, which provided a combined 40% of First Marblehead's revenue last year, 25% ownership of Sallie Mae.
Marblehead investors have long been concerned that the big banks would respond to the attractive, growing student loan market by bringing the services First Marblehead provides in-house. The Sallie Mae news obviously stirred those concerns in a big way.
CAPS players have resoundingly stuck behind the stock, though. By my count, over the last two days alone, 93 CAPS players have recommended First Marblehead versus just two that have given it the thumbs-down. Eighteen of the players providing outperform calls are currently ranked in the top 5% of all CAPS players. Providing some commentary on his call, CAPS All-Star whatismyoption says:
The market belched First Marblehead up on the Sallie Mae news, marking it down 25% during the day. In the short term First Marblehead may go a little lower, but in the medium term there will be reassuring news that will encourage buyers. The fastest returns will come if anti-trust kicks both JPMorgan and Bank of America. If that or something else doesn't sink the buyout then the share price will be capped for a while and volatile to all news.
So is First Marblehead looking like a bargain now? Let the community know what you think -- head over to CAPS and share your thoughts with the other 26,000 players who are currently part of the community. Even if you'd prefer to pass on First Marblehead, you can check out a couple of the other stocks listed above -- or any of the 4,300 stocks rated on CAPS.
For more CAPS coverage:
Fool contributor Matt Koppenheffer owns shares of Bank of America 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. Bank of America and JP Morgan Chase are Motley Fool Income Investor picks. The Fool's disclosure policy recalls the day when it taught Mr. Miyagi how to paint the fence.
