5 stocks in a half-off sale

Investors' collective wisdom can help you find stocks capable of recuperating after a precipitous fall.

By Caps Editor Nov 25, 2009 2:13PM

This post comes from The Motley Fool's Rich Duprey.

 

You love buying your shirts when they go on sale. And who can resist a buy-one-get-one-free offer? So when our stocks go on sale, why do we bemoan their low prices?

 

Smart investors like Warren Buffett and Marty Whitman love it when their stocks are suddenly selling at bargain-basement prices. For them, these companies become no-brainer buys.

 

Members of the MSN CAPS community also like a bargain, apparently. Below, you'll find five companies whose shares are selling at least 50% below their 52-week highs but that still earn high marks from our investor-intelligence database. Consider it a buy-one-get-one-free sale on stocks.

 

Allied Irish Banks (AIB) is off 50% since hitting its 52-week high of $10.42 on Sept. 17. The Dublin company offers a range of retail and commercial financial services through 275 branches in Ireland and an additional 50 in Northern Ireland. At CAPS, its American depositary receipts carry a four-star rating.

 

MetroPCS Communications (PCS) is down about 65% since hitting its 52-week high of $18.98 on April 2. The Richardson, Texas, company provides wireless phone services in such cities as Atlanta, Dallas, Los Angeles and Miami. At CAPS, the stock has a four-star rating.

 

OceanFreight (OCNF) is down about 80% from its 52-week high of $5.50, set on Jan. 9. The Athens, Greece, shipper operates a fleet of about a dozen vessels that haul such cargoes as iron ore, grain and coal. At CAPS, its American depositary receipts have a five-star rating.

 

Rentech (RTK) is off about 58% from its 52-week high of $2.93, set on Aug. 19. The company produces nitrogen fertilizer and has technology that converts underutilized energy resources into fuels or other chemicals. At CAPS, the Los Angeles company has a three-star rating.

 

Sequenom (SQNM) has shed 88% of its market value since hitting its 52-week high of $25.99 on Jan. 22. Nearly half of the decline was sustained after the San Diego maker of medical diagnostic tests acknowledged in late September that flawed research would cause it to throw away years of efforts toward developing a prenatal Down syndrome blood test. At CAPS, investors think the company will recover soon enough, and they have maintained a four-star rating on the stock.

 

Naturally, we want you to look a bit closer at these stocks before buying. You can get low-priced appliances in the dent-and-ding section of your home-remodeling superstore, but their quality might not be so good. The same thing applies here: Make sure there's nothing seriously wrong with a company before you plug it into your portfolio.

 

A test of investor resolve
Sequenom has tested the limits of investor patience following the scandal surrounding its efforts to develop a Down syndrome test. There's still potential here, particularly if the SEQureDx data that was mishandled is ultimately validated.

 

But investors are smart to view that possibility with a jaundiced eye. The various legal and regulatory investigations in motion ultimately will get to the bottom of whether this is just poor procedures or outright fraud.

 

Sequenom's most recent quarterly earnings report highlights additional concerns. Revenue fell as a result of fewer sales of its flagship MassARRAY genetic analysis system, although consumables and service contracts from prior placements rose. This suggests that sales of the tests can grow, provided the company can get its product out there and the economy can improve from the present climate, which led customers to significantly scale back their expenditures. 

 

Further clouding its prospects, Sequenom says it hasn't secured all of the funds it needs to meet next year's operating expenses and capital-spending needs. If it maintains current levels of spending, it won't survive. Expect the company to take a meat ax to various line items.

 

This is a symptom of a company hunkering down for the worst. While that may be necessary, it does not bode well for growth or stock-price appreciation, at least not in the near future. Add in the ongoing investigations and investors are right to be leery here.

 

Still, CAPS All-Star "mrindependent" shares management's faith in the science behind the SEQureDX test:

 

"Apparently Sequenom's reported success for non-invasive prenatal testing was based on improperly supervised studies. Now no one at the company is willing to guarantee success, but management is willing to say they still believe in the science. The current Directors and Officers seem to be reputable experts in their fields and they do not seem to be con artists. Based on the people involved, the theoretical underpinnings and the promising (but suspect) data delivered so far, I believe that Sequenem (sic) has a better than even chance of eventually commercializing its tests (or or selling itself to a larger player)," mrindependent wrote.

 

"If the tests are indeed viable, this company will be worth billions compared to its current market cap of $200 million. In summary, I think reward outweighs risk in this highly speculative stock that is currently trading at 1.8 times book value (which is 85% off its all time high)," he added.

 

The mishandling of valuable data prompted a purging of the executive suite, as Sequenom moved to shore up investor confidence. The company installed a chief financial officer who has extensive experience at Ligand Pharmaceuticals (LGND). Harry Hixson, the company's chairman and a former chief operating officer at Amgen (AMGN), remains as interim CEO.

 

Sequenom stock is indeed cheap, and those who buy in now could reap substantial profits if positive news comes out. Yet there is also the very real possibility of fraudulent manipulation. It's interesting to note that just before the scandal became public, Sequenom's vice president in charge of prenatal diagnostics sold off all of his shares.

 

It's too difficult to call right now, so a bet here would be a gamble more than an investment.

 

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Tags: CAPS
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