I am always looking for a good deal, whether that means buying three boxes of Frosted Flakes when they go 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 crazy 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 show up at your door 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 pennies on the dollar.
So to find some of the stocks 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 Harbors |
(8.4%) |
45.8% |
|
|
American Dairy |
(15.0%) |
N/A |
|
|
NeuStar |
(14.6%) |
(7.3%) |
|
|
i-CABLE Communications |
(12.0%) |
(6.2%) |
|
|
Mueller Water |
(11.0%) |
N/A |
|
|
Pope Resources |
(9.7%) |
16.8% |
|
|
Resource America |
(9.7%) |
18.5% |
As the chart 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 begin some further research. I'll even kick you off with some thoughts on American Dairy.
American Dairy, from whence do you come?
American Dairy is just the kind of crazy story I love to read about. It began life as Gaslight, Inc., back in 1985. Doing what? Doing nothing. The company was inactive until 1988.
In 1988, Gaslight changed its name to Lazarus Industries and went into the medical device business. That lasted until 1991, when the company discontinued that business and became a public shell. Again.
American Dairy officially became American Dairy in 2003, when the company acquired American Flying Crane Corporation. American Flying Crane owned Heilongjiang Feihe Dairy, which, in turn, owned BaiQuan Feihe Dairy and had 95% ownership of Beijing Feihe Biotechnology Scientific and Commercial. These businesses sell milk, soybeans, and walnut powder in China. Yup, you read that right, American Dairy's business operations are all in China.
The dairy diary
It may seem like a pretty dull business, but try telling that to Wimm-Bill-Dann
American Dairy has put up some pretty impressive results of its own. Net income for 2005 nearly doubled 2004's result, and 2004 came in more than triple that of 2003. The first nine months of 2006 continued the trend and showed both revenue and net income up almost 100% over the prior year's results.
The fourth-quarter results appear to have blindsided investors, though, and shares dropped 16% yesterday on about five times the normal trading volume (which is pretty slim). The company grew revenue 49% over the prior year, which would be a fantastic result if investors hadn't been getting used to the torrid results from the prior periods. More noticeable, though, was the measly 9% growth in net income.
In the press release, American Dairy explained that the bottom-line results were impacted by an increased amount of investment in branding and marketing. The company is projecting that profit margins will rebound in the first quarter and will be at least 14%, up from 11% in the fourth quarter. It also is expecting strong, but somewhat slower, growth of 39% in the first quarter's top line.
The company has had a particularly strong showing on CAPS, where it currently has 46 outperform ratings against zero underperform ratings. Seventeen of these outperforms have come from CAPS All-Stars. One of them, JonWest88, has this to say about American Dairy:
In China, there is a governmental push to promote the drinking of milk as part of a healthier diet. And given that there are over 200 million primary school children in China, the growth potential is sizeable. Other key government programs to grow the Chinese dairy industry include exemption from corporate income tax and Value Added Tax (VAT) rebates. American Dairy receives VAT rebates and has a tax exemption through 2009.
So the question is whether the company will benefit from the primed Chinese market and the extra marketing spending in the fourth quarter. Has it already hit its peak, or is it just getting warmed up? Let the community know what you think -- head over to CAPS and share your thoughts with the other 25,000 players currently part of the community. Even if you'd prefer to pass on American Dairy, you can check out a couple of the other stocks listed above -- or any of the 4,200 stocks rated on CAPS.
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Fool contributor Matt Koppenheffer does not own shares of any of the companies mentioned. You can check out Matt's CAPS portfolio here, or tune into his CAPS blog here. Mueller Water is a Motley Fool Hidden Gems pick. The Fool's disclosure policy knows exactly what Willis was talking about.
