"We are young, heartache to heartache
We stand
No promises, no demands
Love is a battlefield”
-- Pat Benatar
In 1983, Pat Benatar posited the idea that "love is a battlefield.” For those with a foot in the stock market in 2008 and early 2009, investing has also proven to be a battlefield. On Monday, stocks hit their lowest levels since 1997.
Once we see those losses piling up, the temptation is to run away; yet the greatest victors are often the ones who resist that temptation, knowing that they have the edge and should prevail over the long run. In fact, now might be the best time to buy in as an investor, as past history has shown that those who buy in near the bottom in historic market crashes have made some of the highest returns over time.
The best battlefield commanders are those who understand their own army and can convince their troops to hold the line even when things look bleakest. Likewise, the best investors are the ones who understand the fundamentals behind the companies they are investing in, are able to spot value, and have the resolve to buy in and hold the line, no matter how bad things look in the short term. It’s scary jumping in with falling knifes coming down from the sky, but the wanton destruction of capital has left some deep values out there in the market that can bring major returns for the brave, long-term investor who knows when to stand his or her ground.
Using our Motley Fool CAPS stock screener, I decided to search for some deep value stocks with the potential to score major returns over the long term. The metrics I used to search out these deep value candidates were:
- Stocks selling at less than 80% of their book value
- Priced at least 60% below their 52-week highs
- Long-term debt-to-equity ratio less than 1
These metrics should allow me to find potential deep value stocks that do not have a high amount of frightening long-term debt on their balance sheets. However, as I ended up with a rather long list using solely those metrics, I decided to use a few additional constraints that would help identify some of the stronger companies on sale:
- More than 10% inside ownership
- Greater than 10% return on equity
- CAPS rating of 3 to 5 stars
High inside ownership indicates that management has a vested interest in seeing the stock succeed. A 10% return on equity suggests that the company has run its operations efficiently. A CAPS rating of 3 to 5 stars will limit our search to companies that our 125,000 CAPS investment community thinks highly of.
Here are some of the companies our screen turned up:
|
Company |
CAPS Rating |
Below 52-wk High |
Price-to-Book |
LT Debt/Equity |
Inside Ownership |
Return on Equity |
|---|---|---|---|---|---|---|
|
GulfMark Offshore (NYSE:GLF) |
***** |
70% |
0.6 |
0.53 |
11.2% |
15.5% |
|
Harbin Electric (NASDAQ:HRBN) |
**** |
74% |
0.8 |
0.2 |
50.6% |
14.2% |
|
KHD Humboldt (NYSE:KHD) |
***** |
76% |
0.75 |
0.04 |
20.6% |
19.5% |
|
Olympic Steel (NASDAQ:ZEUS) |
**** |
82% |
0.49 |
0.28 |
16.5% |
21% |
|
PetroQuest Energy (NYSE:PQ) |
**** |
83% |
0.67 |
0.53 |
13.7% |
18.3% |
|
Reliance Steel (NYSE:RS) |
*** |
67% |
0.79 |
0.9 |
13.8% |
20.6% |
|
Rick’s Cabaret |
***** |
87% |
0.5 |
0.48 |
10.9% |
10.5% |
|
TBS Internat’l (NASDAQ:TBSI) |
**** |
88% |
0.4 |
0.44 |
28.8% |
33.5% |
*Data from Motley Fool CAPS as of Feb.24, 2009.
While you can run the screen yourself, please remember that the CAPS screener is merely a starting point in finding the value stocks that will help us prevail on the investing battlefield. Check out commentary at the CAPS community to get more insight into some of these companies. Then do some due diligence to see if any of these investments are right for you.
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