"Don't catch a falling knife," as the old saw commands. (Pardon me for mixing a cutlery metaphor.) 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 where Motley Fool CAPS comes in.
Today, we once again stand beneath Mr. Market's silverware drawer, measuring which knives have fallen the farthest. Then we'll call on CAPS to ask which of these stocks -- if any -- Foolish investors believe are ready for a rebound. Let's meet today's list of contenders, drawn from the latest "52-Week Lows" list at Nasdaq.com:
|
52-Week High |
Currently Fetching |
CAPS Rating (out of 5) |
|
|---|---|---|---|
|
Canon |
$60.16 |
$46.24 |
***** |
|
PetSmart |
$35.48 |
$23.79 |
**** |
|
SanDisk |
$59.75 |
$33.54 |
**** |
|
ChipMOS |
$7.99 |
$4.11 |
**** |
|
FedEx |
$121.42 |
$90.62 |
*** |
If there's one good thing about a broad-based market sell-off, it's that you find a lot of terrific companies getting the ol' baby-and-bathwater treatment. You just know that some of these tossed-out babies will bounce right back once the suds subside.
Wall Street reverberated with the caterwauling of cast-off children last week. As we survey the wreckage today, every single stock on our list scores average or better on CAPS. With so much quality to choose from, it would be ungrateful to take anything but the best -- namely, five-star favorite Canon.
The bull case for Canon
I don't expect an introduction is in order here. Everyone knows that Canon makes printers, copiers, and digital cameras. In the opinion of our CAPS players, the company makes 'em pretty well.
Jawsmom52 says:
Canon is usually on the cutting edge of the digital business equipment industry. Due to the fact that they develop much of the technology that is used throughout the industry (and are usually ranked in the top 5 in US patent ranking each year), their products usually are far ahead of their competitors. Canon customers usually remain customers, too. The products work.
Checking into this patent-ranking thing, I discovered that in 2006, for example, Canon was No. 3 in patents filed in the U.S., behind IBM
CAPS All-Star Pierri agrees that this is a:
... Solid company with a strong consumer base.... Their commercial grade products should do well if the Tech sector increases over the next year or so. Have a growing line of products in the video media and printing sectors.
And from a financial perspective, fellow All-Star RugbyViking13 adds that in addition to making "top quality products," Canon also generates "tons of free cash and great cash flow."
Turning to valuation, we see that Canon sells for 14 times trailing earnings, and that analysts expect it to grow those earnings at more than 10% per year over the next half-decade. So the stock looks a mite expensive from that perspective. But throw in net cash that approaches $7 billion, long-term investments worth another $890 million or so, and negligible long-term debt, and this picture just looks better and better.
There's just one smudge on the lens that needs clarifying. However many "tons" of cash Canon may be generating, it's still not as much as the firm reports in "accounting profits" under GAAP. Over the last 12 months, Canon reported net earnings equal to about $4.3 billion; in contrast, its cash profits didn't exceed $3 billion.
Time to chime in
So let's tally up our pluses and minuses, shall we? Moderate P/E, decent growth, and massive cash stash -- those all go in the pluses column. Against that, we've got a bit less cash profit than a Fool might like. Is that quibble enough to keep you out of the stock, or do you love it nonetheless? Click on over to Motley Fool CAPS and tell us what you think.
