Get Ready for the Bounce
"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:
|Aflac (NYS: AFL)||$59.54||$34.61||*****|
|Ingersoll-Rand (NYS: IR)||$52.33||$27.56||*****|
|FLIR (NAS: FLIR)||$37.29||$22.15||*****|
|NYSE Euronext (NYS: NYX)||$41.60||$25.25||*****|
|Nucor (NYS: NUE)||$49.24||$31.51||*****|
The week in weak stocks
Last week was another tough one for stocks. Actually, I may be understating the case. After three more or less "level" days, the Dow sold off hard Thursday, then fell again Friday, cementing the week's record as the fourth straight for America's favorite stock index. But every cloud has a silver lining, and for any investors with a few pieces of silver left in their pocket, the market panic is starting to produce some surprising bargains.
In the chart above you see five stocks now trading at 52-week lows. Five stocks that - despite, or perhaps because of, their recent discounts -- are among the most popular companies we track here on CAPS. But which one is the very best buy available right now?
Could it be Nucor? You know I like the company. Unlike Wall Street faves AK Steel (NYS: AKS) and U.S. Steel (NYS: X) , Nucor is one of just a handful of steelmakers still churning out cash in a tough economy.
Likewise, I think the sell-off at NYSE Euronext looks a bit overdone. Sure, Europe's making rumblings about taxing "financial transactions" as a way to help fix its debt mess. But even if that chips away at NYSE's profit margin, there's still a lot to be said for owning one of the premier stock exchange names at a P/E that barely breaks into the double digits.
FLIR's P/E doesn't look too unattractive either. While paying 17 times earnings for a 14% grower isn't exactly the cheapest deal I've ever seen, FLIR is a cash-rich business. Back out its $235 million cash hoard, and the actual business there costs only a bit more than 15 times earnings. And Ingersoll-Rand, while it appears pricey today, sells for just a little more than seven times next year's projected earnings. Wait a bit, and that one could become a bargain, too.
Then again, if what you want to do is buy a stock today, I think one of the stocks on today's list stands duckbill and wings above the rest.
There are many reasons to like Aflac. CAPS All-Star Trimalerus tells us Aflac pays a "high dividend" and, at least until recently, has "consistently outperform[ed] the indices."
CAPS member buckazoid adds that "the fundamentals are all right. Recurring revenue streams; focus on supplemental insurance rather than 'traditional' health insurance and therefore a certain independence from major political change."
On a personal note, CAPS member doinitmyway relates how when a relative was fighting leukemia, Aflac "was by far the most professional and responsive" of the insurance companies she dealt with. "AFLAC provides a critical product to those who are in critical need, is well run, pays a dividend and has one awesome goose!"
Um ... did you say goose?
Well, to-may-to, to-mah-to. You get the point -- Aflac is good people. Seems to me, any company that can attract a stock pitch on CAPS in the form of a positive customer experience is probably doing a good job at following Warren Buffett's advice to "Widen the moat, build enduring competitive advantage, delight your customers, and relentlessly fight costs." If the company's making customers happy, that should ultimately create happy shareholders.
Another thing that should bring a smile to investor faces today is Aflac's share price. Aflac today costs just 9.1 times earnings, despite the Wall Street consensus that Aflac will be able to grow its earnings at better than 12% per year over the next five years. Even if the resulting 0.76 PEG ratio isn't enough to float your boat, its dividend certainly will. Right now, Aflac shares pay a whopping 3.4% annually.
Between its cheap stock price, respectable growth rate, and generous dividend yield, Aflac looks to me like one hard-hit stock that's sure to bounce sooner or later. My advice: Don't look a gift duck in the bill. Aflac is cheap enough to buy already.
Or at least, that's the way it looks to me -- but what do you think about Aflac? Tell us on Motley Fool CAPS.
At the time this article was published Fool contributorRich Smithdoes not own shares of, nor is he short, any company named above. You can find him on CAPS, publicly pontificating under the handleTMFDitty, where he's currently ranked No. 392 out of more than 180,000 members. The Fool has adisclosure policy.The Motley Fool owns shares of Nucor and Aflac.Motley Fool newsletter serviceshave recommended buying shares of Aflac, Nucor, and NYSE Euronext.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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