"Don't catch a falling knife," as the old saw commands. (Pardon my mixing a cutlery metaphor.) The idea of buying a former superstar stock at a discount price certainly has its attractions, but you've got to make sure you catch the haft -- not the blade. That's where Motley Fool CAPS comes in.
It's been a while, but thanks to last week's sell-off, we once again have a chance to stand beneath Mr. Market's silverware drawer in hopes of snagging a bargain. Let's meet today's contenders:
Administradora de Fondos de Pensiones Provida SA (NYS: PVD)
Illumina (NAS: ILMN)
MetroPCS (NYS: PCS)
U.S. Natural Gas (NYS: UNG)
BMC Software (NYS: BMC)
The week in weak stocks
Last week was another roller coaster for investors, as stocks first plunged into official "bear market" territory Tuesday -- then bounced hard. The Dow Jones Industrial Average (INDEX: ^DJI), which bottomed at an intraday low of 10,362 Tuesday, ultimately closed out the week well north of 11,000, actually posting a gain for the week. Not all stocks were so lucky.
In the chart above, you see five stocks (technically, four stocks and an ETF) that missed out on the bounce, ending the week at 52-week lows. Beginning at the bottom, BMC Software had a very bad week -- first following the Dow up on news that it was expanding its presence in "the cloud" with a purchase of fellow software maker StreamStep, then falling off a cliff late Friday for no apparent reason. Investors might almost prefer the steady, consistent slide at U.S. Natural Gas, to the head-fake that was BMC's performance last week. At least with USNG, we know what to expect.
In contrast, the week actually started off well for Fool faves MetroPCS and Illumina. The former received an initiation at "buy" from BTIG Research, but ended the week on a weak note when MetroPCS confirmed it had no plans to enter the market for wireless tablet computers anytime soon. Illumina, lacking the tailwind of an analyst upgrade, nonetheless generally held its ground against the market sell-off -- up until Friday, when all heck broke loose. Management issued an earnings warning and suspended its full-year guidance, sending Illumina into a 30% tailspin.
Last but not least, we come to the highest-rated stock on today's list, the mellifluously monikered Administradora de Fondos de Pensiones Provida. I'm going to go ahead and assume you've never heard of this one before, OK? So we'll dive right in.
The bull case for Administradora de Fondos de Pensiones Provida
AFP Provida is the largest of five private companies charged with managing employee pension funds in Chile. CAPS member jameshartland calls it a "solid company with great biz and little competition," and predicts it "will also benefit as middle class grows in Latam."
All-Star investor JackCaps notes that "PVD pays a nice dividend with a payout ratio just over 40%," leaving open the possibility of dividend hikes in the future.
Fellow CAPS All-Star limanova agrees that it's "a solid mining based fund."
Of course, that does pose a problem. Being located in Chile, and tied to the local economy, Provida's future is accordingly tied somewhat to the success of Chile's copper mining industry. As you'll recall from last week's column, things haven't gone so well for the world's copper miners lately. Freeport-McMoRan (NYS: FCX) and Southern Copper (NAS: SCCO) , for example, were exploring their own private bear markets before it was cool. Presumably, that's at least part of the reason Provida's own stock has been in the dumps lately.
Still, what goes down often comes back up, and when I look at Provida's stock price today, I'm not sure it has any place to go but up. I mean, the stock only costs 7.2 times earnings today, yet it pays a 6.6% dividend. Seems to me that at prices like these, any growth at Provida above the rate of inflation should be enough to make the stock a buy.
Time to chime in
Granted, no analysts follow this stock, and growth estimates for Provida are hard to come by. But considering how low the growth hurdle is here, I suspect Provida can leap it. I'd be a buyer at these prices. Would you?
Tell us -- on Motley Fool CAPS.
At the time thisarticle was published Fool contributorRich Smithowns shares of Freeport-McMoRan. You can find him on CAPS, publicly pontificating under the handleTMFDitty, where he's currently ranked No. 282 out of more than 180,000 members. The Fool has adisclosure policy.The Motley Fool owns shares of BMC Software and Freeport-McMoRan Copper & Gold.Motley Fool newsletter serviceshave recommended buying shares of Illumina and Administradora de Fondos de Pensiones Provida.Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
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