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 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 |
|---|---|---|---|
|
Aluminum Corp. of China |
(29.6%) |
(72.1%) |
**** |
|
3SBio |
(26.7%) |
(51.8%) |
***** |
|
CME Group |
(25.4%) |
(71.1%) |
***** |
|
Otter Tail |
(18.0%) |
(39.3%) |
***** |
|
Burlington Northern Santa Fe |
(16.9%) |
(19.1%) |
***** |
|
America Movil |
(16.7%) |
(48.1%) |
***** |
|
Horsehead Holding |
(15.5%) |
(69.6%) |
***** |
Data from Motley Fool CAPS as of Jan. 20.
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 CME Group.
Why so blue?
Earnings may not be out for CME Group yet, but investors in the futures-exchange firm are jumping the gun and getting disappointed ahead of time -- kind of the way I felt when I heard that Guns 'n Roses was releasing an album without Slash. Investors aren't without data points to work from, though. Earlier this month, the company shared some details on its fourth quarter and full year, and though the average daily volume for the full year increased 4%, it fell 14% in the fourth quarter and 22% in December. It couldn't have helped either that IntercontinentalExchange
CME's full earnings will come out on Feb. 3, but it's obvious that a lot of investors don't want to stick around to see what they may show.
What the bulls say
As the owner of not only the Chicago Mercantile Exchange, but also the Chicago Board of Trade and the New York Mercantile Exchange, CME is a powerhouse in the world of futures and options trading. You name the derivative and there's a near guarantee that one of the CME companies is handling it. In the near future there's even a good chance that CME will take a bite out of the massive credit default swap market, as that market finally gets pulled from the smoky back rooms of Wall Street.
With only a moderate amount of required capital spending for the business, CME has been able to take the cash it produces and help fund its major acquisitions, as well as buy back shares and pay a dividend. Financial products that skew toward the more complex may be -- for good reason -- out of vogue right now, but it'd be a mistake to lump CME with the failing financial institutions, since it doesn't directly take on the same kind of risk that companies such as Lehman Brothers and Morgan Stanley
While there are some detractors on CAPS, the vast majority of CAPS members have been positive on CME's future. Three weeks ago, brightsideLP weighed in with a simple: "premier trading post on the planet. nuff said." A few months earlier, fellow CME bull thepitboss highlighted the potential of CME taking on the CDS market:
CME Group, with its current plans to provide a CDS exchange (those toxic debt backed securities that have troubled the economy) will see to benefit greatly from this exposure to the general public. Interest in the group will also increase due to the current rush to bonds and other securities along those lines that are traded on the CME's exchanges. CME has been around for many years, trading enormous amounts of volume day after day.
So do you think the recent drop has created a good buying opportunity? Or will CME continue to suffer? Let the community know what you think -- head over to CAPS and share your thoughts with the other 125,000 members currently part of the community. Even if you'd prefer to pass on CME, 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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