Valuation is an imperfect science, but it's as important a concept to fantasy football players as it is to investors. Ask anyone who picked up Mario Manningham, a relatively unknown player, off the waiver wire last week. The Giants' second-year receiver impressed a national audience with 10 catches for 150 yards and a touchdown in a 33-31 victory over the Cowboys.
Value is value, whether you're assembling a fantasy team or a stock portfolio. But don't take my word for it. "Before you make any decision -- who to draft, trade, start, and sit -- make sure you are following that basic principle; how risky is this move, does it give me the best chance to win?" writes ESPN fantasy analyst Matthew Berry in his annual manifesto.
See the parallels here? Winning fantasy football involves picking up unloved players for less than market value, while market-beating investors buy oversold stocks for $0.50 on the dollar.
Waiver-wire heroes, meet unloved stocks ready to rise
These investors knew that Omniture (NASDAQ:OMTR) was being dumped last year, when it should have been prized -- and they've since been rewarded.
More bargains are out there. For this weekly column -- and to borrow a line from Berry, because I'm a company man -- let's use the Motley Fool CAPS screener to find the stock market's version of waiver-wire heroes like Manningham. Here's what we're looking for:
- A minimum $250 million market cap, because we don't draft unsigned free agents.
- A price-to-earnings (P/E) ratio of less than 12, because we're not interested in players everyone else loves.
- A 10% or better return on equity (ROE), because we want proof that these stocks can play at the level we need them to.
- A 20% or worse haircut in price over the past year, because we're bargain hunters.
Today's screen returned 115 candidates that could be worthy of filling roster spots in your portfolio. These six possess a track record of superior returns on shareholder equity:
|
Company |
52-Week Price Change |
P/E Ratio |
ROE |
|---|---|---|---|
|
PotashCorp (NYSE:POT) |
(36.9%) |
11.9 |
45.8% |
|
Petroleum Development (NASDAQ:PETD) |
(60%) |
2.1 |
27.2% |
|
Transocean (NYSE:RIG) |
(30.6%) |
6.9 |
23.9% |
|
Patriot Coal (NYSE:PCX) |
(59.5%) |
4.6 |
19.9% |
|
China Medical Technologies (NASDAQ:CMED) |
(51.8%) |
1.2 |
14.4% |
|
Cincinnati Financial (NASDAQ:CINF) |
(21%) |
10 |
10.2% |
Source: Motley Fool CAPS screen data.
Of these, I'd pick up Petroleum Development. Any stock that trades for a measly two times earnings is either a) ridiculously underpriced, or b) about to implode. Petroleum Development isn't about to implode, according to CAPS investor LEGMAKER in a May blog post:
[Petroleum Development] saw an increase of production for 2007 of 65%. Their reserve replacement rate was 1397% over the same period. Proven reserves increased by 112%. Their CEO has stated that they will continue to increase these reserves both through the drill bit and by acquisitions.
Petroleum Development's recent numbers are equally interesting. Return on equity rose to 32.6% over the trailing 12 months, up from 25% for 2008 and 8.8% in 2007. Net debt has risen dramatically over the last few years, but it currently remains a respectable 47% of total capital. And there's also that ridiculous multiple to consider.
Still, that's just my take. What do you think? Would you give Petroleum Development a spot on your portfolio roster? Let us know by signing up for CAPS today. It's 100% free to participate.
