I am always looking for a good deal, whether that means buying three boxes of Cinnamon Toast Crunch when it goes 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 as low as pennies on the dollar.
So 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 |
|---|---|---|---|
|
Ultra Clean Holdings |
(14.4%) |
93.3% |
***** |
|
Tiens Biotech Group |
(27.0%) |
(23.2%) |
**** |
|
BSD Medical |
(14.2%) |
21.7% |
***** |
|
United Industrial |
(11.3%) |
(24.4%) |
***** |
|
ResMed |
(13.5%) |
0.7% |
*** |
|
Robert Half |
(13.8%) |
(21.0%) |
**** |
|
AXT |
(21.3%) |
(5.9%) |
***** |
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 kick off some further research. I'll even get you started with some thoughts on Ultra Clean Holdings.
Taken to the cleaners
Expectations are the sword of Damocles when earnings season rolls around, and that sword fell on Ultra Clean Holdings yesterday, lopping almost 20% off the stock.
Ultra Clean manufactures subsystems, primarily gas delivery systems, for the semiconductor industry. Its primary customers are OEMs like Applied Materials and Lam Research, which buy Ultra Clean's subsystems to use in their semiconductor capital equipment.
As a provider to the semiconductor industry, Ultra Clean experiences the same cyclicality as the rest of the industry. In 2003, for example, the company saw revenue shrink 8%, only to jump 138% the next year. In 2005, revenue shrank again, this time by 20%, followed by a 129% increase in 2006. In addition to the general industry cyclicality, Ultra Clean is also beholden to a relatively small number of customers (in 2006, three customers totaled 86% of revenue), and a slowdown or pushed order from even one of these customers can significantly impact results.
This type of business is prone to lumpiness, meaning it can be very hard to make accurate projections from quarter to quarter. For the company's first quarter, it reported revenue up 94% versus the same quarter last year and earnings per share that doubled. EPS, however, missed analysts' expectations by $0.03. Compounding matters for the stock, the company also gave projections for the second quarter that fell short of what Wall Street had in mind.
On CAPS, players were not turned away by the earnings miss. CAPS All-Star Kinzo simply said that it was "another overreaction by Mr. Market." WSMOOT19, who also sounded off on Ultra Clean, shared:
The fact that the stock was down over 19% on a record earnings report is just wrong. This large amount of profit taking makes the stock very inexpensive at its current level. So look for a good move to the upside over the next month.
So is Ultra Clean looking like a bargain now? Let the community know what you think -- head over to CAPS and share your thoughts with the other 26,000 players who are currently part of the community. Even if you'd prefer to pass on Ultra Clean, you can check out a couple of the other stocks listed above -- or any of the 4,300 stocks that are rated on CAPS.
For more CAPS coverage:
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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 in to his CAPS blog here. The Fool's disclosure policy recalls the day it taught Mr. Miyagi how to sand the floor.
