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.
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 just 30 days ago:
|
Stock |
30-day return |
One-year return |
Current CAPS rating |
|---|---|---|---|
|
Penn West Energy Trust |
(33.7%) |
(68.9%) |
***** |
|
Devon Energy |
(33.6%) |
(60.4%) |
***** |
|
Yingli Green Energy |
(33.5%) |
(77.6%) |
***** |
|
USEC |
(29.9%) |
(39.1%) |
***** |
|
Apache |
(29.5%) |
(54.3%) |
***** |
|
NRG Energy |
(25.3%) |
(58.1%) |
***** |
|
Berkshire Hathaway |
(20.7%) |
(47.4%) |
***** |
Data from Motley Fool CAPS as of March 3.
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 begin further research. I'll even get you started with some thoughts on Berkshire Hathaway.
Why so blue?
The shade of blue cast over Berkshire Hathaway's stock has a lot to do with the company's fourth-quarter report. I'll summarize for you: It was about as pretty as a baboon in a sundress. And while our primate friend might be good for a few laughs, the numbers from Berkshire Hathaway were far from funny. For the full year, book value fell 9.4% and net earnings dropped 62% in a tough economy; the falling stock market blasted a hole in the company's common-stock portfolio.
While this performance may not seem too hair-raising, given what some other companies have reported, it's the worst drop in book value on record for Berkshire Hathaway since Warren Buffett took over. Buffett even owned up to making a major misstep during the year by buying a bunch of ConocoPhillips
What the bulls say
If you're looking for Berkshire Hathaway bulls, look no further than CAPS. There are more than 4,000 CAPS members who think Berkshire Hathaway will outperform the rest of the market against just 61 who think it will lag. Rlloydevans is one of the fans:
Stock is massively beaten down due to temporary revenue decrease, but is selling at a massive discount to the BRK-A shares (should be 1/30 but trading MUCH lower) while Berkshire is a cash-rich, solidly run company that is well set to explode (again) once the current market turns around. It is buying stakes in companies at huge discounts, including convertible preferred stock transactions that lock in solid gains while offering the possibility of massive profits if the companies can turn around anytime in the next 10-15 years. With that sort of outlook, Berkshire is well set to make surreal profits in 2-5 years.
I'm going to have to go with the bulls on this one. Though Berkshire Hathaway did have a tough year, much of the declines were driven by general stock market declines and derivatives contracts marked to market that Buffett goes to great pains to explain in his annual letter to shareholders. Besides those two major issues, Berkshire Hathaway still showed that it owns a great portfolio of diversified operating businesses, particularly when it comes to insurance. At the same time, Buffett has been starting to put more and more money to work in a depressed market, a recipe that has usually led to good returns down the road.
Right now, Berkshire Hathaway's stock is trading right around its book value, a valuation it hasn't hit since ... well, let's just say it has been a long, long time. And as Buffett wittily put it in the shareholders letter: "Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down."
So do you think the recent drop has created a good buying opportunity? Or has Berkshire Hathaway's magic faded? Let the community know what you think: Head over to CAPS and share your thoughts with the other 125,000 members. Even if you'd prefer to pass on Berkshire Hathaway, you can check out a couple of the other stocks listed above or any of the nearly 5,400 stocks that are rated on CAPS.
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