I am always looking for a good deal, whether that means buying an extra box of cereal when it's 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 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 |
|---|---|---|---|
|
Mindray Medical |
(14.5%) |
(41.6%) |
***** |
|
Mylan |
(12.1%) |
3.6% |
***** |
|
American Oriental Bioengineering |
(7.3%) |
(61.1%) |
***** |
|
Portfolio Recovery Associates |
(6.3%) |
(22.8%) |
***** |
|
Southern Copper |
(6.1%) |
(44.4%) |
***** |
|
Landec |
(4.9%) |
(24.6%) |
***** |
|
RF Micro Devices |
(4.6%) |
(39.2%) |
**** |
Data from Motley Fool CAPS as of May 19.
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 Portfolio Recovery Associates.
Why so blue?
As a manager of portfolios of distressed consumer debt, there is no doubt that our current unpleasant economic circumstances may be about as welcome for the company's collectors as a stink bomb on a crowded elevator. Though there may be some opportunities that arise from the stressed environment, climbing unemployment makes collecting on debt even more difficult.
When it comes to Portfolio Recovery's stock, the report of first-quarter earnings didn't help much. Taking the economy's current lot into account, the results weren't all that terrible, but they did fall well below Wall Street's expectations. The company blamed the shortfall primarily on charges it had to take against a few underperforming pools of loans.
What the bulls say
But how bullish are CAPS members on Portfolio Recovery's chances of, um, recovery? Pretty darn bullish. Of the 3,453 members who have weighed in on the stock, more than 97% have registered a thumbs-up.
TMFEnochRoot, one of Portfolio Recovery's many fans, pitched support for the stock way back in 2006:
More likely than not a buy it and forget it kind of stock. [Portfolio Recovery] can perform well in an up market, when its 'clients' are marginally better able to pay and [Portfolio Recovery] can outperform their paper pricing predictions. They can also perform well in a down market, when higher volumes of paper is available for purchase leading to more [attractive] pricing opportunities. [Portfolio Recovery] is the undisputed quality management leader in the space, and they have proven their ability to execute on both the collections side, with high quality training and relatively stable collecton force, and on the paper purchase side, with disciplined and rational purchase decisions.
If you check out my CAPS portfolio you'll find that I've given the stock a thumbs-up because I'm right on the same page as TMFEnochRoot. Not only do I like the fact that both good and bad economies provide the company with opportunities, but I also appreciate the experience that the company has with collecting hard-to-collect debt. In today's environment it seems that having that expertise is more important than ever.
But here's the question: Do you think the recent drop has created a good buying opportunity? Or will unemployment and a dog-tired economy prove too much for Portfolio Recovery? Let the community know what you think. Head over to CAPS and share your thoughts with the other 130,000 members. Even if you'd prefer to pass on Portfolio Recovery, 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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