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I am 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 may 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 house calls on a daily basis, offering to sell you interest in businesses he owns or buy interest in businesses you own.
Sometimes, Mr. Market will show up at your door very excited, offering you premium prices for your holdings. Other times, he'll be totally depressed about the future, offering to sell you what he has for as low as pennies on the dollar.
- MSN CAPS: Tap the wisdom of the investing crowd
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 highest rating (five stars) from our community of investors just 30 days ago.
As the table shows, these stocks are all still very well-regarded by the CAPS community 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.
| Company | Sector | 1-month change | Year to date | CAPS rating |
|---|---|---|---|---|
Oil-field services | -29.6% | -50% | ***** | |
Money transfers | -26.2% | -39% | ***** | |
Construction and farm machinery | -31.1% | -82% | **** | |
Business software | -23.8% | -51% | **** | |
Medical technologies | -20.3% | -63% | ***** | |
Steel and iron | -24.1% | -58% | ***** | |
Integrated circuits | -20.2% | -31% | ***** |
Wired for success
It's earnings season, so we can bet that many big drops have something to do with an earnings release -- and this is certainly the case with Western Union (WU, news, msgs).Current results weren't all that disappointing. Though per-share earnings missed analysts' estimates by a penny, revenue was up 10% from a year earlier and net income was up 11%.
The company also has been hard at work using cash to buy back shares. It repurchased a whopping $523 million of its stock during the quarter, and still has about $1 billion authorized for additional buybacks.
Permeating the Oct. 21 earnings release, though, were signs that growth may be flagging.
Management adjusted its earnings range for the full year, bringing down the top end to $1.25 from $1.31. Previously, management had expected the year to come in toward the top end of that higher guidance.
More from MSN Money and The Motley Fool
We can start here with the valuation. Western Union may not be among the stocks that have been beaten all the way down to a single-digit price/earnings multiple, but at the midpoint of management's new earnings guidance it's trading at about 12 times 2008 earnings. If the company is able to grow anywhere near its previous objective, that would be a pretty attractive valuation.
Getting away from the income statement, in this environment there's a lot to be said for a company that generates as much cash from operations as Western Union does. For the 12 months ended in September, the company has raked in over $1 billion in operating cash flow. And though it does have $3 billion of debt on its balance sheet, it also has $1 billion in cash and has its interest expense well covered.
On CAPS, nearly 1,000 members are bullish on Western Union versus just 31 who are bearish, giving the stock its perfect five-star rating.
CAPS All-Star "LiLNipsFatal" has been among those expecting the stock to outperform. "Western Union is best in class in the money-transfer market and they hold many sustainable competitive advantages over competitors," he wrote. "The company possesses an unrivaled network of 295,000 agents, which allows it to benefit from the network effect, as each additional agent makes using Western Union that much more convenient for customers. The Western Union brand is the most recognized in the industry, which is important when consumers entrust the company with their hard-earned cash."
So do you think the recent drop has created a buying opportunity? Or will Western Union continue to get dragged down by the weak economy? Let the community know what you think -- head over to CAPSand share your thoughts with 120,000-plus participants.
Even if you'd prefer to pass on Western Union, you can check out a couple of the other stocks listed above, or any of the 5,400 stocks rated on CAPS.
This article was reported and written by Matt Koppenheffer for The Motley Fool. At the time of publication, he owned none of the stocks mentioned.
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