I am always looking for a good deal, whether that means buying an extra box of Golden Grahams 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 (no relation to the cereal) tells us, by way of allegory, how we can look out for these situations.
In The Intelligent Investor, Graham introduces readers to a wacky chap 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.
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 |
|---|---|---|---|
|
Valero Energy |
(21.6%) |
(58.9%) |
**** |
|
Manitowoc |
(15.0%) |
(84.1%) |
***** |
|
UnitedHealth |
(10.0%) |
(21.0%) |
***** |
|
Trinity Industries |
(9.8%) |
(59.7%) |
***** |
|
Denbury Resources |
(8.4%) |
(54.2%) |
***** |
|
Frontier Oil |
(7.5%) |
(44.2%) |
***** |
|
XTO Energy |
(6.8%) |
(38.4%) |
***** |
Data from Motley Fool CAPS as of June 9.
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 Valero.
Why so blue?
Often when I'm looking at the highly rated stocks that have taken a hit, I'm able to say that the declines were in large part due to market overreaction. There may have been some of that with Valero, but recent news out of the company has been pretty disturbing.
Last Tuesday, in one fell swoop, the company announced that it would likely report a $0.50-per-share loss in the second quarter and that it was going to sell 40 million shares of common stock. Either one could be painful, but together they're a downright disaster.
According to the company, the second-quarter loss is being driven by longer-than-expected downtimes at refineries, along with depressed discounts on sour crude -- a disadvantaged crude that typically gives Valero an advantage -- and low diesel fuel margins. These are reasonable excuses for registering a loss, but the big question is why management was caught with its pants so far down on both accounts.
Even more concerning is the stock offering. Valero is using the funds to pay for the purchase of expansionary assets, which is encouraging. However, the timing and price of the stock offering is just awful, particularly when we consider the massive amount of stock the company bought back at much higher prices over the past few years.
Buy high and sell low? Sounds like management has no idea how much Valero's equity is worth. Not that I would expect them to particularly care -- Valero's CEO owns around 775,000 shares of stock, which is laughably low considering he was granted more than 550,000 shares in 2008. Valero has 516 million shares outstanding, according to Yahoo! Finance.
What the bulls say
The recent developments at Valero may be even more frustrating to me because I've been a fan of the company and have rated its stock an outperformer in my CAPS portfolio -- a call that has cost me 25 points so far. I'd like to still believe that the company's refining footprint and ability to handle disadvantaged crudes will shine through in the end, but its management team is now flashing a yellow warning light at me.
But many CAPS members think the recent sell-off presents exactly the time to jump on board with Valero. CAPS All-Star IsleGirl2010 kept it right to the point when giving the stock a thumbs-up recently: "When recovery happens and energy demand increases, this company will take off running. Current 17% drop is an over reaction by the market in my opinion."
So here's the question: Do you think the recent drop has created a good buying opportunity? Or will the stock need to cool off further? Head over to CAPS and share your thoughts with the other 135,000 members currently part of the community. Even if you'd prefer to pass on Valero, you can check out a couple of the other stocks listed above or any of the 5,300 stocks that are rated on CAPS.
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