"Don't catch a falling knife," sayeth the sage. The idea of buying a former superstar stock at a discount price certainly has its attractions, but you've got to make sure you catch the haft -- not the blade.
For the second time today, we're upending Mr. Market's kitchen drawers and watching the knives tumble. We've already sifted through the silverware on the NYSE. Now it's time to take a stab (pardon the pun) at bargain hunting on the Naz. As always, we have two guides in this endeavor; we start with the latest "New 52-Week Lows" list at WSJ.com, then crunch the numbers on investor sentiment at Motley Fool CAPS:
| Company |
52-Week High |
Recent Price |
CAPS Rating (5 max): |
|---|---|---|---|
|
Applied Materials |
$21.75 |
$11.40 |
***** |
|
CME Group |
$714.48 |
$251.20 |
**** |
|
Solarfun Power |
$40.19 |
$4.92 |
*** |
|
Starbucks |
$26.75 |
$9.69 |
** |
|
CA |
$28.11 |
$14.65 |
* |
Companies are selected from the "New 52-Week Lows" list published on WSJ.com on the Saturday following close of trading last week. 52-week high and recent price provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.
Knives and knaves
By close of trading Friday, no fewer than 350 stocks trading on the NYSE hit bottom. Over at the Nasdaq, the news was even worse -- 387 listings landed with dull thuds at their 52-week lows. On each exchange, one out of every eight stocks had its worst day in a year.
But here's the good news: Focusing on the Naz in particular, some of the most popular companies in recent memory -- Starbucks, Chicago Merc, and Applied Materials -- are selling for what would have seemed pipe-dream prices just one year ago.
And yet, now that they're cheap, a lot of investors are having second thoughts. Take the artist formerly known as "Computer Associates," for instance. Investors just plain hate CA. Solarfun bores 'em to tears. And even Starbucks leaves a bitter taste in their mouths.
One company, however, combines the best of all three worlds: Historical popularity, a bargain price, and widespread support from CAPS members even after its fall from grace on the Street. To learn more about this trifecta of perfection, join with me as we delve into ...
The bull case for Applied Materials
jawilde introduces us to this company:
Dominant supplier of semiconductor equipment and now leveraging expertise to enter solar cell market. Both are growth fields with solar having higher growth potential. Excellent financial strength and balance sheet. P/E is a little high, but still reasonable given their growth prospects.
The Fool's own TMFBreakerDave echoes that view: "Cash-rich, well-positioned leader will create long-term value at these prices for patient shareholders, and should turn nicely as its industry cycle bottoms out and turns."
Moreover, for anyone wanting to invest in solar, but wary of being burned after watching stocks like Suntech
Indeed, buying "pick and shovel" plays like Applied Materials does eliminate the risk of trying to predict which downstream firm will make the biggest splash. But how much do these picks and shovels cost?
As it turns out, a whole lot less than you might think. Sure, the company's P/E ratio of 14 doesn't look particularly attractive relative to analyst growth estimates of just 11%. But remember that Applied Materials generates more free cash flow than it reports as net earnings under GAAP. With a sub-8 price-to-free cash flow ratio, and an enterprise value-to-FCF ratio that's even lower, Applied Materials strikes me as a stealth bargain. I'd be a buyer at these prices.
Time to chime in
Of course, the aim of this column isn't just to tell you what I think about Applied Materials -- or even what other CAPS players are saying. We really want to hear your thoughts. Click on over to Motley Fool CAPS and tell us what you think.
Motley Fool CAPS : It's fun, it's free, and it just might make you famous.
