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 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 |
|---|---|---|---|
|
Clean Energy Fuels |
(16.0%) |
27.3% |
**** |
|
PetMed Express |
(15.0%) |
7.8% |
***** |
|
China Precision Steel |
(12.9%) |
24.2% |
***** |
|
Double-Take Software |
(9.4%) |
23.5% |
***** |
|
ICO |
(8.3%) |
17.5% |
***** |
|
Sun Hydraulics |
(7.2%) |
20.6% |
***** |
|
Huntsman |
(7.1%) |
(25.2%) |
***** |
Data from Motley Fool CAPS as of Oct. 27.
As the table shows, all of these stocks are still very well-regarded by the CAPS community despite their underperformance over the past month. While these are not formal recommendations, they are a great place to kick off further research. I'll even get you started with some thoughts on PetMed Express.
Why so blue?
The third-quarter report for PetMed Express, which markets itself as 1-800-PET-MEDS, could have been titled "1-800-REV-MISS."
Though the company was able to best analysts' profit estimates for the quarter, sales were lighter than expected and grew a meager 5% from last year. The profit/revenue trade-off could be a cause for concern, as it appears that much of the extra profit that the company reported came from a drop in advertising. Normally, the company buys up remnant ad space, which gets its message out while saving money, but this past quarter media buyers were snatching up those remnants that PetMed used to buy.
If this dynamic continues, the company could face the tough decision of either tailing off advertising, which would hurt sales, or paying more for its ad space, which would hurt profits.
Of course, we could also surmise that media buyers have been cutting costs and taking roads less traveled lately because of the recession. As we emerge from recession, normal buying patterns could once again take hold, leaving PetMed its cheap corner of the media market.
What the bulls say
PetMed is a clear favorite among CAPS members, with 681 outperform ratings versus 17 underperforms. Members have highlighted a number of bullish factors, including the reliability of the pet-care market and the company's growth.
CAPS All-Star and fellow Fool Rich Smith (TMFDitty) recently became one of those bulls and pointed out that PetMed's stock should be appealing to investors across investing philosophies:
EV/FCF/G ratio works out to 11.5. Toss in a tidy 2% dividend, and what you've got here is a case for growth, a case for value, *and* a case for income. That makes PetMeds man's new best friend.
But here's the important question: Do you think the recent drop has created a good buying opportunity? Or will the economy and a tough marketing environment continue to leave PetMed flat-footed? Head over to CAPS and share your thoughts with the 140,000 members. Even if you'd prefer to pass on PetMed, you can check out a couple of the other stocks listed above or any of the 5,300 stocks that are rated on CAPS.
More CAPS Foolishness:
