I am always looking for a good deal, whether that means buying an extra box of Frosted Flakes when they're 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 wacky 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 inconsolably 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 |
|---|---|---|---|
|
Anadigics |
(61.1%) |
(78.3%) |
***** |
|
McDermott International |
(37.0%) |
(13.5%) |
***** |
|
The9 |
(29.8%) |
(51.1%) |
***** |
|
Cameco |
(28.3%) |
(25.1%) |
***** |
|
GrafTech International |
(27.6%) |
17.9% |
***** |
|
North American Palladium |
(19.4%) |
(42.4%) |
***** |
|
Sociedad Quimica Y Minera |
(16.2%) |
131.0% |
**** |
Data from Motley Fool CAPS as of Aug. 19.
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 further research. I'll even get you started with some thoughts on The9.
Why so blue?
With second-quarter revenue up 69% from last year and profits up a whopping 129%, why in the world are we talking about this stock plunging 30%?
I'm glad you asked.
Right now, The9 is to the Chinese online gaming world what The Parliament Funkadelic is to the music world. Sure, Parliament is a great collection of musicians, but without George Clinton, do they achieve the same level of fame? I think not. In the same way, it's Activision Blizzard's World of Warcraft that has been drawing the crowds to The9.
Investors have long worried that World of Warcraft is the one trick that this pony has, and that once the thrill of that game fades, so will the company. These fears were recently stoked when Activision Blizzard reached an agreement with The9 competitor NetEase.com to bring both its Starcraft series and other incarnations of the Warcraft series to China.
What the bulls say
But let's not be hasty here. World of Warcraft may be the star of the show, but the company is working diligently to continue diversifying its business. Aside from Activision Blizzard, The9 currently operates games it licenses from a variety of developers, from tiny Webzen to the massive Electronic Arts
And if there's one thing that The9 has, it's the flexibility that comes with an Uncle Scrooge-like pile of cash. At the end of the second quarter, the company had more than $300 million in cash and short-term investments. And these are just a couple of the reasons that fellow Fool Rick Munarriz came up with to be bullish on the stock.
But is this all enough to overcome the fact that WoW made up more than 90% of The9's revenue in 2007? Plenty of CAPS members seem to think so. CAPS All-Star TheGarcipian has been bullish on the stock since July of last year, when he said:
Imagine World of Warcraft on steroids but you still can't a get good handle on what NCTY is all about. Throw in more online RPGs (Role Playing Games) like Guild Wars, Ragnarok, Hellgate: London, and a handful of others, but you still won't get the entire picture. Not until you throw in the big Feng Shui factor: there are potentially 4x-6x more Chinese adolescents and twenty-somethings that adore these games than in the USA. And they will be playing them online with their friends over networks run by the likes of The9 Limited (NCTY). ... Overall, this company should smash the S&P 500 like a war hammer to a watermelon!
So do you think the recent drop has created a good buying opportunity? Or is there more downside ahead? Let the community know what you think -- head over to CAPS and share your thoughts with the other 115,000-plus players currently part of the community. Even if you'd prefer to pass on The9, you can check out a couple of the other stocks listed above or any of the 5,500 stocks that are rated on CAPS.
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