by James Brumley | May 16, 2012 11:42 am
It’s getting ugly out there. Real ugly. In fact, despite Tuesday’s bullish effort, the market is getting so nasty for some stocks that … it’s time to start buying them?
That’s right. It’s time to go bottom fishing.
I’d be the first to acknowledge there’s probably a little more marketwide downside to dole out. In fact, I explicitly said so Tuesday. I think we’re closer to the end of the selloff than the beginning of it, though, and in the grand scheme of things it’s better to be pound-wise than penny-foolish. Besides, some stocks already have suffered more than their fair share of bearishness as fears started to swell a couple of week ago, and they’re primed to rebound soon — no matter what else the market has in store.
Here are four of the most-attractive, excessively oversold names out there right now you might want to consider stepping into before the rest of the market catches its mistake.
Why would an investor want cosmetic company Avon Products (NYSE:AVP) if its smaller competitor, Coty, decided it didn’t even want to buy it? Because there’s more to the story than just Coty balking at spending $10.7 billion on the struggling direct-sales outfit.
Coty, with the support (and presumably the financial backing) of Warren Buffett, officially became interested in Avon at the beginning of April, sending AVP shares up 17% that day. Although Avon’s sales have been shrinking, Coty and Buffett felt strongly about the brand name and felt it could turn the ship around with some tweaks. After Avon declined the first offer and was taking a little too long to respond to the second, Coty basically said “forget it’.” AVP shares plunged back to pre-offer levels.
Here’s the thing: Although the deal is off the table, if Buffett sees the value and was essentially willing to pay for it, there’s likely something to it. And with shares close to the 52-week lows seen in November, who knows? Maybe another suitor thinking along the same lines as Coty is ready to step up to the plate.
Also Read: 4 Beaten-Down Foreign Stocks to Buy Now
While Cognizant Technology Solutions (NASDAQ:CTSH) probably deserved a little flogging back on the 7th after reeling in its outlook a bit, the 19% drubbing was simply overdone. The information technology support and service provider simply said demand for its service from the banking sector was easing off, and revenue estimates for Q2 were lowered by 2.7% — nowhere near the actual punishment shares got.
True, all big trends start out as small ones, but not all small trends become big ones. Traders took the ball and ran with it, though, sending CTSH to undeserved new multi-month lows. The company has been one of market’s most reliable income-growers since 2006, sailing right through the recession as if it wasn’t happening.
To say Xerox (NYSE:XRX) was excessively pounded along with the rest of the market over the past few weeks is a bit misleading. To be proverbially pounded, a stock has to actually rally to a perch from which it can fall. XRX shares never even did that, as they were barely able to tread water since last fall’s marketwide turnaround.
The explanation is simple enough: Why invest in a company that’s built on a dying photocopy business thanks to onset of the all-digital era?
Funny thing about this old-school copier maker, though — it has grown earnings right in step with the advent of the photocopier’s fade-away.
How’s that? Because Xerox is hardly just a copy machine manufacturer anymore. It’s transitioning into digital document management, and doing so well. In fact, it’s doing very well, despite doubts from traders. Although near 52-week lows, XRX shares are priced at a paltry 7.1 times trailing earnings, and only 6.6 times forward-looking earnings, and the company has a solid growth streak going.
There’s an old cliché: “The only things that are certain are death and taxes.”
I disagree. There’s a third certainty in life: trash. As long as you’re alive and kicking and paying taxes, you’re also throwing garbage away.
It’s a point worth remaking following waste management company Republic Services’ (NYSE:RSG) earnings miss last quarter. The pros were expecting a profit of 42 cents per share, and the company only turned in 38 cents. The company also dialed back its outlook for 2012, just a little.
A miss is a miss, and reeling in an outlook never helps. Let’s take a step back and look at the bigger picture here, though. It’s the first time Republic Services has missed in years, and with the exception of last quarter, the company has been another of the market’s stunningly reliable growers. Shares fell 17% on the news, anyway, almost to new 52-week lows.
One has to wonder of the less optimistic outlook was just a little sandbagging. And even if it wasn’t, the forward-looking P/E of 12.2 along with the company’s history isn’t likely to let the stock be priced this low for long.
Yes, it’s tough (and dangerous) to catch a falling knife. Sometimes it’s worth the risk, though, and for the true long-termers, hyper-precision trading isn’t even all that critical. Don’t overthink things here. Just know that in cases like the four above, the key strategy is simple: “Good stocks at low prices.”
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
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