7 premium stocks at cut-rate prices
Posted
Oct 14 2009, 04:36 PM
by
CAPS Editor
Rating:
This post comes from The Motley Fool's Matt Koppenheffer.
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 undervalued stocks.
The idea that anybody would sell a stock for less than it's worth seems silly, but legendary value investor Ben Graham (no relation to the cereal) tells us, by way of allegory, how we can spot these situations.
In "The Intelligent Investor," Graham introduces readers to a wacky chap named Mr. Market. Mr. Market's game is to pay house calls, offering to sell you interests in businesses he owns or buy interests in businesses you own.
Sometimes Mr. Market is excited when he arrives, offering premium prices for your holdings; other times, he's inconsolably depressed about the future, selling what he's got for pennies on the dollar.
Bing: Get more on value investing
To find stocks that make Mr. Market despondent, I've turned to the MSN CAPS investor community. I'm looking for companies that had five-star ratings (the highest) from the community within the past month and that could be considered undervalued despite the rally that pushed the Standard & Poor's 500 Index ($INX) to its 2009 high today.
Here are our stocks, all but one of which have a five-star CAPS rating:
St. Jude Medical (STJ) makes pacemakers, implantable defibrillators and other devices used in cardiac rhythm management. Shares in the St. Paul, Minn., company are down 5% over the past six months and trade at a forward price-to-earnings ratio of 11.9.
NetGear (NTGR) makes networking equipment. Shares in the Silicon Valley company are up 41% over the past six months, and the stock trades at a forward price-to-earnings ratio of 42.7.
North American Palladium (PAL) extracts palladium, gold, silver and other minerals from the Lac des Iles mine near Thunder Bay in Ontario. Shares in the Toronto company are up 60% over the past six months and trade at a forward price-to-earnings ratio of 21.7.
Taiwan Semiconductor Manufacturing (TSM) is one of the world's largest makers of semiconductors. The company's American depositary receipts are up 2.7% over the past six months and trade at a forward price-to-earnings ratio of 17.0.
Waste Management (WM) hauls garbage and handles recycling for more than 21 million residential, industrial, municipal, and commercial customers in the United States and Canada. Shares in the Houston company are up 8% over the past six months and trade at a forward price-to-earnings ratio of 13.6.
Sysco (SYY) distributes food and food supplies to more than 400,000 restaurants, schools, hotels and other institutional customers in the United States and Canada. Shares in the Houston company are up 8.3% over the past six months and trade at a forward price-to-earnings ratio of 13.1.
Burlington Northern Santa Fe (BNI) is one of the nation's largest railroad operators, hauling freight in 28 states in the West, Midwest and Sunbelt regions. Shares in the Fort Worth, Texas, company, are up 23.6% over the past six months and trade at a forward price-to-earnings ratio of 14.6.
While these are not formal recommendations, they could be a great place to kick off your research. I'll get you started with some thoughts on St. Jude Medical, the only one of the seven that has a four-star rating.
Ryhthm and blues
Investors punished the stock after its Oct. 6 warning that quarterly earnings would miss its previous forecast as hospitals curtail purchases of medical devices due to the recession and uncertainty over health care legislation.
St. Jude has been clawing its way up in the medical device industry, grabbing market share from bigger rivals Boston Scientific (BSX) and Medtronic (MDT). St. Jude's revenues are up 116% over the past five years, while operating earnings climbed 120%. And for those who still believe in the baby boomer investment thesis, St. Jude's cardiac rhythm management franchise could be well-positioned.
CAPS members certainly seem to see potential for St. Jude's stock, which has 450 outperform ratings versus 16 underperforms.
CAPS All-Star "coryjobe" gave the stock a thumbs-up in May, noting the baby boom theme: "The (cardiac rhythm management field) is becoming much more crowed as baby boomers start to get older," coryjobe wrote. "Also, Atrial Fibrillation (treatment of cardiac arrhythmia) and Neuromodulation (the process in which neurotransmitters in the nervous system regulate neurons) offer significant long-term growth opportunities."
But here's the important question: Do you think the recent decline in St. Jude's share price presents a buying opportunity? Or will the economy and health care reform continue to cramp St. Jude's style? Head over to CAPS and share your thoughts with the community's 140,000 members. Even if you'd prefer to pass on St. Jude, you can check out some of the other stocks listed above, or any of the 5,300 stocks the community has rated.
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