I am always looking for a good deal, whether that means buying an extra box of Golden Grahams 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 (no relation to the cereal) tells us, by way of allegory, how we can look out for these situations.
In The Intelligent Investor, Graham introduces readers to a wacky chap 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 |
|---|---|---|---|
|
Coventry Health Care |
(64.8%) |
(78.7%) |
***** |
|
Rowan Companies |
(53.3%) |
(61%) |
**** |
|
Nabors Industries |
(53.2%) |
(55.5%) |
***** |
|
Exelixis |
(52%) |
(73.2%) |
***** |
|
Mindray Medical |
(48.5%) |
(53.4%) |
***** |
|
Vaalco Energy |
(39.7%) |
(12.9%) |
***** |
|
Sigma Designs |
(39%) |
(84%) |
***** |
Data from Motley Fool CAPS as of Oct. 28.
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 some further research. I'll even get you started with some thoughts on Coventry Health Care.
Why so blue?
We don't have to look far to find out why Coventry has been clobbered. Last Tuesday, the company released its third-quarter earnings, and they were about as pretty as John Goodman in a dress.
Though revenue for the quarter was up 18%, earnings plummeted roughly 50%. Medical costs rose 26% from the prior year, and the company absorbed a $36 million hit to its investment portfolio. And the cherry on top was the company cutting its forecast for 2008 earnings by a hefty 31%.
The stock was cut more than in half on the news, and it's continued to fall since, dropping 57% in the one week since earnings came out. Yowzers!
What the bulls say
Coventry's fourth-quarter projection of $0.61 per share tells us that things aren't going to bounce back quickly. However, the stock is now trading at less than five times expected full-year 2008 earnings, and less than five times annualized fourth-quarter earnings. The stock is also trading at a hefty discount to book value. And all this despite the fact that Coventry is still profitable and producing a significant amount of cash.
Could it be that investors got a bit carried away on the downside?
Though CAPS member ebarrett4 is kicking himself for picking this stock right before the post-earnings sell-off, he is one of the 878 Coventry bulls on CAPS and thinks that the discount is just too steep:
By my count, the current stock price is trading as if all future earnings estimates will be cut by 50% over the next 5-6 quarters. Based on the 3Q results, that isn't beyond the realm of possibility, but probably very unlikely. And managed health care is not going anywhere and will continue to see increased customers as the U.S. population ages. An excellent long-term play, especially if you're in after this drop!
So do you think the recent drop has created a good buying opportunity? Or will Coventry continue to produce uninspiring results? Let the community know what you think -- head over to CAPS and share your thoughts with the other 120,000-plus players currently part of the community. Even if you'd prefer to pass on Coventry, you can check out a couple of the other stocks listed above -- or any of the 5,400 stocks that are rated on CAPS.
More CAPS Foolishness:
