"The idea of buying a former superstar stock at a discount price certainly has its attractions, but you've got to make sure you catch the haft -- not the blade."
That's the thesis of my weekly Fool.com column "Get Ready for the Bounce," where I run Nasdaq.com's 52-week-lows list through the "wisdom of crowds" meter we call Motley Fool CAPS. The result: a list of stocks that have fallen so far, Foolish investors figure they're just bound to bounce back soon.
But if a stock that's fallen for one year straight has headroom, maybe a stock that's fallen even farther, and longer, has room to soar back even higher. In that case, an apparently left-for-dead stock could offer us a drop-dead gorgeous entry price. We'll test that thesis today, starting with five stocks that just hit their five-year lows:
|
Company |
Recent Price |
CAPS Rating (5 max): |
|---|---|---|
|
Johnson Controls |
$14.13 |
*** |
|
Nomura Holdings |
$5.56 |
*** |
|
Weyerhaeuser |
$28.67 |
** |
|
Arthur J. Gallagher |
$17.90 |
** |
|
Weight Watchers |
$21.55 |
** |
Companies are selected from the "New 5-Year Lows" list published on MSN Money on Thursday. CAPS ratings from Motley Fool CAPS.
Left for dead? Or drop-dead gorgeous?
Each of the stocks listed above has shed between 25% and 60% of its value over the past year alone, and each currently sits at or near its five-year low. Wall Street's left 'em for dead, and to be perfectly honest, most Main Street investors aren't too keen on their prospects, either.
Not one stock on the list gets an above-average rating from CAPS members this week. But beggars can't be choosers. We've got one candidate that at least breaks into average territory with a three-star rating. Let's see whether there might be more to Johnson Controls than meets the eye.
The bull case for Johnson Controls
dashark44 starts us off with the enigmatic comment:
Hybrid cars need batteries, Green buildings need controls. Need I say more?
Um, actually, yes. But in the meantime, CAPS All-Star weiwentg tries to fill the gap with a few more details:
Johnson Controls will take market share in the auto parts business as the more heavily leveraged auto parts suppliers go out of business. Building efficiency is this firm's main growth driver at present, and they seem to be doing quite well here.
Perhaps the most detailed advice on Johnson Controls, however, came from Money4e, who wrote late last year:
They supply seats, car interiors, batteries and other parts of the inside of the car. So when the auto industry recovers, either foreign or domestic or both [Johnson Controls] will rise further. In the mean time they are making the world greener by managing the office building interior climate control... They also are building batteries for electrical cars... So with their current position, they are ready to ROCK ON either when the demand for green office interior wise or car battery wise) or when the auto industry starts recovering ...
One Fool's perspective
I admit, that all sounds promising. But if Johnson Controls' story is so good, why are CAPS members giving the stock only three stars? Perhaps it's the price. Johnson Controls sells for a lofty 62 P/E, and even the slightly better cash flow picture (16 times trailing free cash flow, against analyst estimates of 15% long-term growth) leaves the stock looking fairly priced at best. At worst, it's overpriced -- even moreso when you notice the hefty slug of debt the firm carries.
Still, there's one wild card you should keep in mind: Last week, Ford
No word yet on how lucrative the deal might be for Johnson Controls, of course. But Ford's initial run of 5,000 plug-ins, and its anticipated introduction date of 2012, suggest that the deal isn't a game-changer, and isn't likely to become one for a few years yet. I'd advise Fools to keep an eye on this one. Check back in when it hits a six-, seven-, or eight-year low. Just because we're not at a rock-bottom valuation this week doesn't mean we won't get there eventually.
Time to chime in
Of course, I could be wrong. By the time the true value of Johnson Controls' Ford contract becomes known, the stock may already have run up. What do you think?
