I am always looking for a good deal, whether that means buying two extra boxes of Frosted Flakes when they're on sale or pouncing on undervalued stocks. The idea that anybody would sell a stock for less than it’s worth may seem silly to you and me, but legendary value investor Ben Graham tells us, by way of allegory, how we can find these opportunities.
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, very excited, at your door and offer you premium prices for your holdings; other times he'll be inconsolably depressed about the future and will offer to sell you what he has for pennies on the dollar.
So to find some of those stocks Mr. Market is depressed about, I’ve turned once again to The Motley Fool’s CAPS investor community. Each of the companies below was given a five-star rating (the highest) by our members just 30 days ago:
|
Stock |
30-Day Return |
One-Year Return |
Current CAPS Rating |
|---|---|---|---|
|
Sunoco |
(15.4%) |
(38.4%) |
**** |
|
Healthways |
(14.3%) |
(30.4%) |
***** |
|
Daktronics |
(12.8%) |
(26.5%) |
**** |
|
Nasdaq |
(11.4%) |
12.1% |
***** |
|
NeuStar |
(15.0%) |
(17.1%) |
***** |
|
II-VI |
(11.7%) |
23.4% |
***** |
|
Lloyds TSB Group |
(9.8%) |
(26.1%) |
***** |
Data from Motley Fool CAPS as of May 20.
As the table shows, these stocks are all still very well-regarded in the CAPS community, despite their underperformance over the past month. While these are not formal recommendations, they are great places to kick off some further research. I'll get you started with some thoughts on Motley Fool Hidden Gems favorite II-VI.
Why so blue?
Laser component specialist II-VI proved recently that good earnings don't always lead to stock gains. Despite the fact that year-over-year revenue increased 25% and earnings jumped 30%, the stock has taken an Acme anvil right to the top of its head.
Apparently, the fact that earnings per share for the quarter beat analysts' estimates by 10% wasn't enough to drown out investors' chagrin over the company's projections for the future. For the fiscal fourth quarter, II-VI expects earnings to come in flat or even down from the recent quarter. It also projected that revenue and earnings would grow 11% and 12%, respectively, in 2009 -- well below what many investors were hoping for.
What the bulls say
The CAPS community doesn't seem ready to give up on II-VI yet, and the stock's 60-to-1 outperform-to-underperform ratio attests to that. Some investors think that II-VI's management is simply under-promising when it comes to future results; others have been won over by the long-term prospects for the business.
One of the II-VI fans on CAPS, reddingrunner, had this to say when he picked the stock in October last year:
[T]he stock price has tripled in the last four years and PEG is still only 1; I don't foresee anything but increasing demand and continued high growth. Appears to be very volatile short-term, but that's fine with me. I read the profile and I think "Growth"; I look at the numbers and I think "Value".
What concerns investors today, though, is whether "growth" or "value" are still valid descriptors for the stock, or whether the tepid growth projections now mean that it's caught in some gray area in between.
So do you think the recent drop has created any good buying opportunities? Or is there more downside ahead? Let the community know what you think -- head to CAPS and share your thoughts with the other 105,000-plus players.
Even if you'd prefer to pass on II-VI, you can check out a couple of the other stocks listed above or any of the 5,600 stocks that are rated on CAPS.
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