7 top-rated stocks at bargain prices
Posted
Sep 15 2009, 03:45 PM
by
CAPS Editor
Rating:
This post comes from The Motley Fool's Morgan Housel.
"I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful."
Hard to argue with that seed of wisdom from Warren Buffett, isn't it?
Despite the recent rally, there's still plenty of fear out there. The beauty of it is how much opportunity it's creating for investors patient and diligent enough to reach for the babies thrown out with the bath water.
For help in finding such companies, I turned to the MSN CAPS investment community and the CAPS stock screener tool. I was after a list of companies with the following characteristics:
- A five-star rating on CAPS, signifying that it's considered best-of-breed by the community.
- Estimates of profitability in the year ahead.
- Terrible performance over the past 52 weeks.
Yes, most stocks satisfy this last condition, but what I'm really looking for are stocks with the bullish consensus implied by the stocks' five-star ratings and still cheap despite the market's run-up over the past six months. Among the stocks that came through the screen are seven with values so paltry they demand a closer look. None are formal recommendations, just good starting points for you to dig deeper.
Activision Blizzard (ATVI) is a publisher of video games, including the "Guitar Hero" and "Call of Duty" franchises. It also has more than 11 million subscribers to the "World of Warcraft" multiplayer online game. Shares in the Santa Monica, Calif., company are down 33% over the past 52 weeks as consumers have cut discretionary spending. The stock trades at a forward price-to-earnings ratio of 15.8.
Arch Coal (ACI) is one of the nation's biggest coal miners. Shares in the St. Louis company are down 49% over the past year on slumping electricity demand. The stock trades at a forward price-to-earnings ratio of 16.1.
Berkshire Hathaway (BRK.A) is Warren Buffett's investment vehicle, and even Buffett has suffered in the downturn, sustaining paper losses last year that knocked him out of the top spot among the world's richest people. Shares in the Omaha, Neb., company are down 17% over the past 52 weeks. The stock trades at a price-to-earnings ratio of 52.2.
Schlumberger (SLB) is one of the world's biggest providers of oilfield services. Shares in the Houston company have shed 33% over the past year as its clients slashed capital spending in response to falling energy demand and prices. The stock trades at a forward price-to-earnings ratio of 23.6.
NYSE Euronext (NYX) is one of the world's biggest exchange operators, with exchanges in New York, Paris, Brussels, Lisbon and Amsterdam. Shares in the New York company are down 29% over the past year, as market turmoil has suppressed trading volumes. The stock trades at a forward price-to-earnings ratio of 12.5.
Chesapeake Energy (CHK) is the nation's largest producer of natural gas. Shares in the Oklahoma City company have lost 36% over the past 52 weeks as a glut has sent gas prices to seven-year lows. The stock trades at a forward price-to-earnings ratio of 11.3.
Procter & Gamble (PG) is the nation's biggest supplier of household products, including such billion-dollar brands as Tide, Crest, Pampers and Gillette. Shares declined 24% over the past year as the Cincinnati company lost market share to makers of cheaper goods. The stock trades at a forward price-to-earnings ratio of 13.7.
A closer look at Activision Blizzard
Do recession-proof industries exist? Sure: consumer staples, health care, the government, the Mafia. Maybe a few others.
The video game industry professes confidence that Americans will continue to spend on games even as they cut back elsewhere. And some companies can benefit from recession-led shifts in consumer behavior.
As Activision Blizzard CEO Robert Kotick told The Wall Street Journal last fall: "If you talk to people about the history of the games business during economic downturns, they'll tell you it's a recession-proof industry. I think what's happening is that people go out and spend the $50 or $60 on 'Guitar Hero' and they end up spending so many more hours playing it that they don't have a need to go out to the movies, or as much of a need to watch cable television."
Now, aspects of this notion are challenged by stubborn facts. Video game sales fell 15% in August compared to last year, the sixth consecutive month of year-over-year declines. And profit margins have been harder to come by, as discounters such as Best Buy (BBY) and Wal-Mart (WMT) lower prices for video games. A copy of a game in the Guitar Hero series, for instance, sold for an average of $53 in spring, down from $83 a year earlier.
So maybe we're talking mildly recession-resistant, rather than recession-proof. Fair enough.
Spin it any way you want to, but the negatives are nearly irrelevant to prospective Activision Blizzard investors, considering that a share costs less than $12. Back out the $2.22 in cash per share the company holds on its balance sheet -- which is fair for this debt-free company -- and you get to something around 12 times 2010 earnings.
That doesn't make it the cheapest stock in the market, but it ain't bad for a company with a cult following and a recurring revenue stream. Legions of players are still paying monthly fees to immerse themselves in online fantasies of conquest in "World of Warcraft," a property picked up in 2008 when Vivendi (VIVDY) acquired a 52% stake in Activision and merged the company with its Blizzard Entertainment division.
As CAPS member "riffle10" writes:
"Three words: WORLD OF WARCRACK. They have structured this game in a delightfully similar fashion to a drug-dealer's business plan with the caveat that you pay a premium for the title up front. [T]hen it's $15 a month from there on. The game is addictive and cannot be beaten (read: it doesn't end) and for some is a real means of social interaction. Toss this in with a huge suite of other world-beating titles in a rapidly expanding industry and there's a lot to like about ATVI."
So, do you agree with the bulls' take on Activision Blizzard? Check out what the CAPS community is saying about the company, and offer your own opinion.
Each stock's CAPS page is a good place to start your research; you can find a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made. Turn to member blogs for insight and opinion. Let your voice be heard. It can make a difference.
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