7 highly rated stocks on sale
Dynamic Materials is among companies that remain well-regarded by the MSN Money CAPS community despite being beaten down over the past month.
This post comes from The Motley Fool's Matt Koppenheffer.
I'm always looking for a good deal, whether that means buying an extra box of Golden Grahams when they're on sale or pouncing on an undervalued stock.
The idea that anybody would sell a stock for less than it's worth might 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 guy named Mr. Market, who pays you daily house calls, offering to sell you interest in businesses he owns or to buy interest in businesses you own.
Sometimes Mr. Market shows up at your door very excited, offering you premium prices for your holdings. Other times he's totally depressed about the future, offering to sell you what he has for as low as pennies on the dollar.
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To find some of the stocks that Mr. Market is depressed about, I've turned once again to our MSN CAPS investing community. Each of the companies below merited the community's highest rating (five stars) just 30 days ago.
The stocks listed below are all still very well-regarded despite their dismal performance over the past month. While these aren't formal recommendations, they could be a great place to kick off further research.
Applied Materials (AMAT) is the world's largest maker of equipment used to manufacture semiconductors. Its shares are down 16% over the past month. At CAPS, the stock has a four-star rating.
Dynamic Materials (BOOM) uses explosives to do metal cladding on plates used in energy, shipbuilding and other industries. Its shares have slid 25% over the past month. The stock has a five-star rating.
Joy Global (JOYG) makes mining equipment. Its shares have shed 24% over the past month. The stock has a four-star rating.
Quality Systems (QSII) provides information-management software for the health care industry. The stock is down 21% over the past 30 days and has a five-star rating.
Suncor Energy (SU) develops Canada's Athabasca oil sands. Its shares are down 22% over the past month. It has a four-star rating.
Tata Motors (TTM) is India's largest automaker by sales. Its American depositary receipts are down 17% over the past month. The company rates five stars.
Western Refining (WNR) converts crude oil into gasoline and other fuels. Its shares are down 25% over the past month. The company has a five-star rating.
Why so blue?
I used to be a fan of the Yahoo Finance message boards. It was an unhealthful addiction, like staring at a car wreck.
One thing I could count on from those message boards, though, was that if a stock ever moved one way or another without any significant news, somebody would inevitably start the chant of "somebody knows something."
As in somebody has gotten his hands on information that the rest of the market isn't privy to and is selling like crazy as a result.
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With no significant recent news, then, the big drop for Dynamic Materials' stock over the past month must mean somebody knows something, right?
Probably not. What I figured out pretty quickly is that 99 times out of 100, the "somebody knows something" chant is total and complete malarkey. There are myriad reasons a stock might make a significant move without any news, but the important thing for any fundamentals-focused investor to remember is that when the business hasn't changed but the price gets lower, the stock gets . . . what's that word? Oh, yeah, cheaper.
What the bulls say
The recession has been pretty ugly for Dynamic Materials. If analysts' estimates are accurate, the company will report 2009 earnings that are down 63% from the previous year. This is, of course, the kind of thing that happens to cyclical companies when they find themselves in the midst of a downturn.
The flip side is that analysts expect the company will benefit greatly from the budding economic recovery and will nearly have doubled its per-share earnings between 2009 and 2011. And with growing end markets around the world -- roughly 65% of the company's sales are to customers outside the U.S. -- it seems likely that the growth will continue beyond 2011.
CAPS participants have been a bullish bunch on Dynamic Materials. Among the 1,523 CAPS members giving Dynamic Materials a thumbs up is "dhabluetzel," who rated the stock an outperformer in late 2008, citing long-term demand for its products.
"Providing corrosion protection cladding for base metal sheets is in demand in industry," the CAPS All-Star wrote. "Many processes utilize highly corrosive chemicals to join polymers to produce raw plastic for industry. The oil patch also uses these end products (clad metal) in the construction of refineries which are going to have to be built to keep up with demand and replace ageing plants."
Do you think the recent drop has created a good buying opportunity? Or will Dynamic Materials' shares continue to struggle? Head over to CAPS and share your thoughts with its 145,000 members. Even if you'd prefer to pass on Dynamic Materials, you can check out some of the additional 5,300 stocks rated there.
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