With all the volatility in the markets today, there's no shortage of market seers trying to call a bottom. Man of the Year Ben Bernanke called a bottom not once, but twice. Heck, even Keanu Reeves laid out what a world-ending market bottom looks like.
Investors should consider buying stocks after a big decline, when pessimism has unduly beaten good companies down to great prices. That's why we here at the Fool -- and 160,000-plus investors like us -- look to the Motley Fool CAPS community to help distinguish the real opportunities from languishing companies driven by speculation.
A real bottom or another leg down?
Of course, there's no foolproof method for timing a market bottom. But CAPS has a great balance of both quantitative and qualitative resources available on 5,400 stocks, and even a nifty stock screening tool to help investors quickly zero in on potential opportunities. Once we've rounded up our candidates, we can use all the information in CAPS to test whether each company has already hit bottom or simply primed shareholders for further pain.
I've used the CAPS screener to filter out $100 million-plus companies whose stock price has appreciated by at least 20% in the past 13 weeks even while remaining at least 45% below its 52-week high.
Company |
CAPS Rating
|
13-Week |
% Below 52-week High |
---|---|---|---|
Conn's |
**** |
30.5% |
58.6% |
Melco Crown Entertainment |
**** |
23.1% |
47.1% |
Borders Group |
* |
75.9% |
57.6% |
Source: Motley Fool CAPS. Results from Dec. 18, 2009, through March 15.
The bottom case
While some contend that investing in casino stocks holds the same odds as gambling at their tables and slots these days -- that is, the house always wins -- many investors nonetheless see several reasons why Melco Crown Entertainment may be the exception. Business has been booming in Macau recently, which has helped shares of Melco Crown Entertainment head back in a positive direction after their recent slump. The company posted a nearly 60% jump in fourth-quarter revenue, helped in part by its new City of Dreams casino now open there. And while Penn National Gaming
Or dead cat in disguise?
Even though some metrics have improved for Melco Crown Entertainment, it continues to lose money on the bottom line and its revenue growth in the fourth quarter still wound up short of Wall Street's expectations. Its fourth-quarter loss widened to nearly $90 million, and analysts estimate the company will be in the red for the foreseeable future, leaving some investors unwilling to invest when there are more profitable competitors with better prospects. While some CAPS members are bullish on the long-term prospects of Macau, some investors see Melco Crown Entertainment as a more speculative play in the sector and prefer more established operators. And with the Chinese government's history of restricting visits to the region and recent signs that it may try to cool the fast-growing market, changes in policies could dramatically alter Melco Crown Entertainment's business.
What's your call?
Overall, nearly 96% of the 1,233 CAPS members rating Melco Crown Entertainment see it outperforming the broader market. Because the company faces external risks as well as its internal risks of developing profitable operations, I'm compelled to look elsewhere.
But what ultimately counts is your own opinion; CAPS is just there to help you form it. The best part is that the Motley Fool CAPS database is free, and you can even add your own insight on any of the 5,400 stocks that our 160,000-plus members have covered.