When a stock such as
Apple (Nasdaaq: AAPL)
Chipotle Mexican Grill (NYSE:
is universally loved, you should think twice about buying in, lest
you arrive as the euphoria starts to fade. Instead, look for stocks
that aren't being chased by the crowd. These stocks often hit a
rough stretch, get shunned by many growth and momentum investors
and soon find themselves being valued at a fraction of their former
In this unforgiving market, there's no shortage of lagging stocks.
Some deserve to be shunned because business is likely to remain
lousy, valuations don't look attractive -- even after a big
sell-off -- and few catalysts are in place for a rebound. But I've
developed a list of stocks that should hold appeal. They've all
fallen more than 50% from the 52-week high, are expected to post
rebounding results in 2012, and most importantly, now trade for
less than 10 times projected 2012 profits. Not only do these stocks
possess considerable upside when business rebounds, but they also
offer more downside protection if the market falls even lower,
thanks to those low price-to-earnings (
A few stocks immediately jump out for attention.
, which trails
Office Depot (NYSE:
in the office supply retail category, is struggling with anemic
sales growth. Yet as is the case with Office Depot, which I
discussed in this article, management is at least doing a better
job of controlling gross margins and
. OfficeMax just delivered a $0.07 quarterlyprofit , ahead of the
break-even forecast. Is the company healthy? Not yet, but the sharp
plunge in the stock appears to have run its course.
I also noted that
Axcelis Technologies (Nasdaq:
makes the cut. I came across this company when I saw that it was
selling at a sharp discount to a rival that had just been acquired.
Read the original article here
.] I came across Axcelis again when I profiled stocks selling below
tangiblebook value . I profiled it again when it emerged on a list
of companies with considerable insider buying. Now it re-appears as
a "cheap P/E" play. Any time a stock hits multiple buttons, I sit
up and take notice.
Lastly, I profiled shoe retailer
Collective Brands (NYSE:
a month ago
, andshares have continued to weaken in the face of a tough stock
market. Trading at just eight times projected 2012 profits -- when
those profits are being constrained by a lousyeconomy , should
raise eyebrows. In a better
, when people are buying more shoes,
earnings per share (
power could approach $2. Not bad for a $12 stock.
Here are two more names for you to consider...
1. Motricity (Nasdaq:
Last fall, here's
what I had to say
about this provider of wireless network software: "With
now approaching $30, they clearly look
. And we have stock cheerleader Jim Cramer to thank for that. He's
been talking up the stock recently, even though it now trades for
more nearly seven times projected 2011 sales and more than 30 times
next year's profits." Alas, shares peaked at $32 and can now be had
for just $6.
With shares now in the refuse bin, they actually look much more
attractive. When shares were popular, investors had unrealistic
growth expectations for this company, which was seen as a great way
to play the burgeoning wireless data industry. The company also
took on a bit of hubris, making a $100 millionacquisition of a
European mobile advertising firm less than a year after
itself. This was a tough pill to swallow for a small company, and
investors grew to fear
indigestion. Adding insult, Motricity then cautioned that growth
expectations for 2011 -- and the first quarter in particular --
were too aggressive.
Not only did analysts need to lower growth assumptions, but they
assigned lower multiples on that lower growth rate. Yet by many
measures, the selloff appears overdone. Shares are simply too cheap
now. For example, software stocks can often trade for up to four to
six times revenue, thanks to very high gross margins, but Motricity
trades for just 1.4 times sales. It's worth noting that even as
analysts have been lowering their
forecasts, Motricity is still likely to post very strong profit
growth in 2011 and 2012, making it hard to justify a P/E ratio of
just six times projected 2012earnings .
It's unlikely Motricity will deliver sharp upside when quarterly
results are released on August 9. So it pays to simply wait and
listen to the conferencecall . If management can make a clear case
that the next 12 to 18 months will deliver the growth analysts
still expect, then this is a clear bargain stock.
2. Rubicon Technologies (Nasdaq:
I remain a big fan of chip and solar equipment supplier
GT Solar (Nasdaq:
I profiled back in May
. The supplier of furnaces used in the production of solar and
semiconductor wafers has been piling up new orders at a furious
pace. But analysts suspect some of that momentum for GT Solar is
coming at the direct expense of Rubicon, a key rival.
Rubicon exploded on the scene in 2010, boosting sales nearly 300%
to $77 million. Sales had been expected to double again in 2011,
pushing per share profits up another 100%. But analysts are
concerned the aggressive forecasts won't be met, especially in
2012, because all vendors in the space may need to cut prices to
win more orders. Let's assume that's the case. This is still a very
cheap stock after losing half of its value in just three months.
Rubicon releases second quarter results on Thursday, August 4. If
management can make the case margins will see only moderate
pressure in 2012, then value investors are likely to pounce on this
beaten down name.
Action to Take -->
All of these companies are wrestling with near-term challenges, but
shares have been so mercilessly pummeled that any good news would
quickly push shares back up. This is a solid group of names for
further research, and I'm especially bullish on Axcelis
Technologies and Collective Brands.
-- David Sterman
The 10 Best Stocks to Hold Forever
One of these stock has plowed through 8 bear markets and has
returned over +170,000% since 1972. Every $700 you invested back
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company is raising its dividends, spending billions to buy back its
own shares, making smart acquisitions, and is the dominant leader
in a $30 billion market. This is just one of the 10 best "Forever"
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Disclosure: Neither David Sterman nor StreetAuthority, LLC hold
positions in any securities mentioned in this article.