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 |
1-Year Return |
Current CAPS Rating |
|---|---|---|---|
|
Hurco Companies |
(19.7%) |
(51.1%) |
***** |
|
Denbury Resources |
(11.2%) |
(34.3%) |
***** |
|
Fomento Economico Mexicano |
(10.9%) |
(24.2%) |
**** |
|
Dolby Laboratories |
(10.6%) |
(8.4%) |
***** |
|
Aluminum Corp. of China |
(9.8%) |
20.9% |
**** |
|
China Mobile |
(8.1%) |
(11.4%) |
***** |
|
Northgate Minerals |
(8.0%) |
46.3% |
***** |
Data from Motley Fool CAPS.
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 Motley Fool Hidden Gems favorite Hurco Companies.
Why so blue?
Right off the bat I can tell you what hasn't helped Hurco's stock -- its most recent quarterly operating results. For the third quarter, ended July 31, the company reported a massive 67% year-over-year drop in revenue, including a 73% decline in Europe, its largest market. New order bookings didn't look any better, with a 66% drop from this time last year.
As for the bottom line, we might as well say "what bottom line?" The company went from earning $5.8 million in last year's third quarter to posting a $1.2 million loss this year.
But should we really expect anything different from a company that sells computerized machine tools? As a supplier to the manufacturing sector of the global economy, Hurco's business is highly cyclical, meaning that we can count on steep dives like this when the economy is in full-on pitch mode -- as it is now.
Back in August, the Association for Manufacturing Technology tabulated U.S. manufacturing technology consumption for June and found that total purchasing was down more than 69% from the prior year. Maybe we can take solace in the fact that the total was up 22% from May, but the industry still has a ways to go before getting back to where it was.
What the bulls say
Even though it's a small fry, as a company in existence for more than 30 years, Hurco is no undisciplined newcomer. And even though this may be one of the world's toughest economic challenges in a long time, it's also not the company's first time through a recessionary wringer.
As of quarter's end, Hurco had implemented cost-control initiatives and its balance sheet was sitting pretty with almost $27 million in cash and no debt.
The CAPS community certainly seems to believe in this little company that could. Nearly 1,700 CAPS members have rated the stock an outperformer, versus a meager 27 who think it will lag the rest of the market. CAPS All-Star TMFPlatoish first rated the stock an outperformer back in October 2006, writing:
This is a very small company in a boring (or at least out of the public eye) industry. They are a technology company however and supply the machine tool industry with a strong line of innovative products. They haven't really been discovered by Wall Street yet because of their size. My feeling is that will change as they grow and become recognized, and with it will come an expanded multiple, more in line with the larger players in the industry and in recognition of their solid growth and profitability metrics. They are expanding rapidly in Asia and have made it a priority. ... Outperform.
But here's the important question: Do you think the recent drop has created a good buying opportunity? Or will the recession be too much for little ol' Hurco? Head over to CAPS and share your thoughts with the 140,000-member community. Even if you'd prefer to pass on Hurco, 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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