A common misconception among investors is that a stock's price
tag indicates its true value. For example, some investors may
believe that Apple (NASDAQ:
) is expensive because it trades for over $586 a share. That
logic ignores the fact that Apple trades at just 10 times next
year's earnings, which is in fact inexpensive relative to many
On the other hand, some investors may view Pandora (NYSE:
) as cheap simply because it trades below $9 per share. That view
comes despite the fact that the shares trade for almost 125 times
next year's estimated earnings.
Rather, Apple and Pandora should tell investors that stocks
can be "cheap" even when shares have high price tags, and pricey
even when individual shares carry low price tags. The latter
scenario underscores the wisdom of not being lured into a stock
simply because of the superficial metric of market price. With
that in mind, investors would do well to avoid or short the
following single-digit names next year:
LDK Solar (NYSE:
A stock that trades for less than $2 and has surged more than 27
percent in the past week can be seductive, but keep in mind this
is a solar stock that fell more than 10 percent on Monday.
China-based LDK on Monday slashed its full-year revenue forecast
to $950 million-$1 billion from $1-$1.5 billion. The company also
said it expects fourth-quarter revenue of $230-$290 million,
which is well below the consensus estimate of $552.35
Forget $2, the shares closed barely above $1 on Monday and the
average price target is just $1.16, implying little upside from
current levels. LDK could easily trade for 50 cents or less
before its sees $1.80 again.
Century Aluminum (NASDAQ:
Practically every aluminum stock has been taken to the woodshed
this year due to falling prices of the commodity. In turn, lower
prices result in slack revenue and profits for aluminum producers
and that theme has permeated this space. Century Aluminum is a
small-cap stock that trades at almost 41 times 2013's estimated
earnings. On the other hand, investors can pay just a few pennies
more and get Dow component Alcoa (NYSE:
) at just 12.4 times next year's earnings.
Caesars Entertainment (NASDAQ:
On volume that was better than double the daily average, shares
of Caesars Entertainment surged almost 10 percent on Monday, but
that does little to eat away at a loss of roughly 56 percent
since the company's February IPO.
The reason for the recent bullishness in this downtrodden name
is easily spotted, though highly flawed. Investors appear to
betting, no pun intended, that Caesars will join the special
dividend craze and follow rivals Las Vegas Sands (NYSE:
) and Wynn Resports (NASDAQ:
) in issuing special payouts.
However, that would be foolish, as Caesars' balance sheet is
less than fortress-like. It is the balance sheet that explains
why this is a single-digit stock that is not a good value.
has $20 billion in junk-rated debt
and has to pay $1.5 billion a year in interest on that debt.
Paying $1.5 billion in interest annually means that until
Caesars can boost its credit rating, an unlikely scenario in the
near- to medium-term, the company is devoting almost double its
current market cap to interest expenses. That is not an
attractive proposition for investors. Nor is the fact that
earlier this year Fitch Ratings said Caesars could find its way
to bankruptcy court in the future.
(c) 2012 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.