As you may well know, our Fool Community of discussion boards is a vast arena where thousands of interesting discussions are taking place on countless topics related to money, investing, and life in general. One particularly inviting nook is our Value Investing board, where I ran across an interesting post last year.
The author of the post shared a list of companies that had popped up on a screen of stocks hitting record lows over the past 52 weeks. This in itself isn't surprising. Active investors are always on the lookout for attractive investments and value-oriented investors are especially interested in looking for companies trading well below their intrinsic value. So it can make sense to look among those firms that have tumbled over the past year.
Here's the list that was shared:
- Arrhythmia Research Technology
Great Wolf Resorts
- Yankee Candle
Looks promising enough, right? Well, the list was offered a full year ago. Let's see how these stocks fared in the following 52 weeks:
|Great Wolf Resorts||20%|
|Arrhythmia Research Technology||17%|
|Annaly Capital Management||3%|
What it means
So what can we learn from this list? Well, here are a few thoughts and reminders:
- Anyone who bought some of these companies mainly because they'd fallen significantly would have experienced some painful losses. If you average the nine returns, you'll end up with an average gain of less than one percent.
- By themselves, lists of companies that meet one or two conditions aren't typically very useful. The more you learn about a company, the better you'll often do. It can really help, for example, to know why a company has fallen on hard times. Temporary problems are much less worrisome than long-term problems. The rising cost of fuel was one factor pressing on FedEx, for example, and a fellow discussion board denizen, Calpinist, mused that gas and oil will probably drop from current levels. Well, they have dropped recently, but not that much. Still, FedEx has indeed seen its stock rise.
- How a stock has done in the past year doesn't usually involve any kind of end-point. You're just looking at two points along a long continuum -- its current stock price versus its year-ago price. In the days, months, and years ahead, the stock may continue dropping, or it may eventually turn around. Some of the companies posting negative numbers above may still turn out to be good long-term investments; it may just be too soon to tell.
- It can also be useful to look at comnpanies hitting 52-week highs. These firms may be on a roll, perhaps recovering from previous slumps.
What to do
So how should you approach such lists? Well, go ahead and be excited at having a group of investment candidates. But then buckle down and study them. If they're in fields you know nothing about and have little interest in learning about, you're generally better off avoiding them. Plantronics, for example, makes telecommunications headsets. Does that make you yawn? If not, think about Yankee Candle -- do you want to keep up with the latest developments in giftware retailing? If your answer is "no," then perhaps move on. If you don't know too much about cardiology and cardiology-related software, you might be out of your league with Arrhythmia Research Technology.
When you find companies that seem to be within your circle of competence, dig deeper. Pore through their financial statements and see how healthy they are -- how much cash and debt they have, and how quickly their sales and earnings are growing. Beware if their accounts receivable or inventories are growing more quickly than sales. Evaluate their competitive position and avoid any firms without strong competitive advantages. Blockbuster, for example, is facing very fierce competition from the likes of Netflix
If all this sounds like too much work, well . it is. Another option you have is seeking out lists of investment candidates that have already been screened for many important factors. For example, a newsletter such as our Motley Fool Inside Value can deliver regular recommendations to you, vetted by our analyst Philip Durell, who studies them deeply and often even talks to management. Together, his picks so far are up 15% versus 10% for the S&P 500 -- and keep in mind that many of them were chosen due to recent underpeformance. So he expects that their surging days are still ahead of them.
I invite you to take advantage of a no-obligation free trial of the newsletter service, which will give you access to all past issues, so you can read in depth about any or all Philip's recommendations. I think you'll be impressed with his list of companies -- it includes some very familiar names and some firms you might be happy you learned about.
Here's to a happier portfolio! (And hey -- consider forwarding this article to anyone whose financial future you care about. Just click on the "Email this Page" link near the bottom of the page.)
Wal-Mart is a Motley Fool Inside Value recommendation. FedEx and Netflix are Motley Fool Stock Advisorpicks. Annaly Capital Management is aMotley Fool Income Investorselection. Great Wolf Resorts is a former Rule Breakers recommendation.
Longtime Fool contributor Selena Maranjian owns shares of Wal-Mart and Netflix. For more about Selena, view her bio and her profile. You might also be interested in these books she has written or co-written: The Motley Fool Money Guide and The Motley Fool Investment Guide for Teens . The Motley Fool is Fools writing for Fools.