I am always looking for a good deal, whether that means buying an extra box of Cocoa Puffs 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 tells us, by way of allegory, how we can look out for these situations.
In The Intelligent Investor, Graham introduces readers to a wacky 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 inconsolably 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 |
|---|---|---|---|
|
WellPoint |
(38.3%) |
(40.2%) |
**** |
|
VASCO Data Security |
(30.8%) |
(31.3%) |
***** |
|
Titanium Metals |
(24.7%) |
(52.6%) |
***** |
|
U.S.
Global Investors |
(21.5%) |
(28.1%) |
**** |
|
Mindray Medical |
(20.8%) |
10.6% |
***** |
|
NETGEAR |
(18.7%) |
(23.8%) |
***** |
|
Frontier Oil |
(13.3%) |
5.6% |
***** |
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 WellPoint.
Why so blue?
Like the realization that Eliot Spitzer isn't as good at living up to expectations as he is at taking down corporate evil-doers, the blow to WellPoint came all at once.
On Monday, WellPoint announced that first-quarter and full-year 2008 earnings were going to fall short of expectations. The triple threat of higher medical expenses, lower enrollment, and a tough economy caused the insurer to lower growth expectations for the year to 4% to 8%, translating to earnings per share of between $5.76 and $6.01. At the midpoint, this is a drop of 8% from its previously forecast $6.41.
As a result of the lowered guidance, the market kindly slashed 28% off WellPoint's stock price.
What the bulls say
WellPoint has a strong following on CAPS with 95 All-Stars rating the stock an outperformer, versus just six who think it will lag the market. The reaction from the lowered earnings has been somewhat mixed from CAPS players, but the majority seem to think that this is a short-term overreaction. One bullish player, ryanbriskin, explained just yesterday:
I "think" that the market has overreacted to the downward guidance offered by WellPoint's CEO just the other day. You're talking about a blue-chip health insurance/care plan that's a licensee of blue/cross blue/shield in a majority of the 50 states. The massive sell-off has rendered the stock price at a level that's right around its book value/share. While I do see massive layoffs, especially in the financials sector, in the near future, which will leave plenty of young Americans without health insurance, I also see this company thriving after the correction happening within its industry.
Do you think the recent drop has created a good buying opportunity? Or is there more downside ahead? Head over to CAPS and share your thoughts with the community of 86,000-plus players. Even if you'd prefer to pass on WellPoint, you can check out a couple of the other stocks listed above or any of the 5,400 stocks that are rated on CAPS.
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