I am always looking for a good deal, whether that means buying an extra box of Cocoa Puffs when it's on sale or pouncing on undervalued stocks. The idea that anybody would sell a stock for less than it's 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 be very excited and offer you premium prices for your holdings, while at other times he'll be totally 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 four- or five-star rating (the highest) by our community of investors just 30 days ago:
|
Stock |
30-Day Return |
One-Year Return |
Current CAPS Rating |
|---|---|---|---|
|
Greatbatch |
(22.9%) |
2.9% |
**** |
|
Perficient |
(22.4%) |
7.6% |
***** |
|
Smith Micro |
(10.2%) |
(10.7%) |
***** |
|
PetSmart |
(8.6%) |
4.6% |
**** |
|
Atheros Communications |
(10.5%) |
21.5% |
***** |
|
Cal Dive International |
(8.2%) |
NA |
***** |
|
FormFactor |
(8.0%) |
(5.9%) |
***** |
Data from Motley Fool CAPS as of Oct. 16.
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 some further research. I'll even get you started with some thoughts on Motley Fool Hidden Gems pick FormFactor.
Sometimes when a stock starts to slide, there is a very clear reason, like lower earnings projections or a downgrade by an analyst. For FormFactor over the past month, the decline hasn't been quite as clear. In early September, fellow Fool Rich Duprey wrote about a patent ruling in Korea that was a blow to the company, but the stock quickly recovered from those declines.
So rather than reviewing the reasons why the stock is down, it probably makes more sense to look at why it's worth considering now that it's at a lower price. The company makes semiconductor wafer probe cards, which are used by semiconductor manufacturers to test their products for defects. FormFactor uses a technology it calls MicroSpring on its cards, which it claims performs more reliable tests with less maintenance than competing cards.
On CAPS, there are 238 All-Stars (the top 20% of all CAPS players) who think FormFactor will outperform the market, with just a single All-Star who thinks it will underperform. TMFPlatoish calls FormFactor his "favorite technology growth story for the next several years" and added, "they will eventually be selling three sets of probe cards to every manufacturer for every version of every technology combination of every device they make. Or at least that's the idea."
On the flip side, FormFactor is not a particularly cheap stock: Even at current prices, it's trading at almost 30 times its projected 2007 earnings estimates. It's possible that some holders have gotten a bit squeamish at the valuation and contributed to the small sell-off.
So has the recent drop created a good buying opportunity? Or is FormFactor still a bit too expensive? Let the community know what you think: Head over to CAPS and share your thoughts with the other 70,000-plus players who are part of the community. Even if you'd prefer to pass on FormFactor, you can check out a couple of the other stocks listed above or any of the 5,000 stocks that are rated on CAPS.
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