With all the volatility in the markets today, there's no shortage of market seers trying to call a bottom. Man of the Year Ben Bernanke called a bottom not once, but twice. Heck, even Keanu Reeves laid out what a world-ending market bottom looks like.
Investors should consider buying stocks after a big decline, when
pessimism has unduly beaten good companies down to great prices. That's
why we here at the Fool -- and 145,000-plus investors like us -- look
to the Motley Fool CAPS community to help sniff out the real opportunities from languishing companies driven by speculation.
A real bottom or another leg down?
course, there's no foolproof method for timing a market bottom. But
CAPS has a great balance of both quantitative and qualitative resources
available on 5,300 stocks, and even a nifty stock screening tool
to help investors quickly zero in on potential opportunities. Once
we've rounded up our candidates, we can use all the information in CAPS
to test whether each company has already hit bottom or simply primed
shareholders for further pain.
I've used the CAPS screener to filter out $100 million-plus
companies whose stock price has appreciated by at least 25% in the past
13 weeks even while they remain at least 30% below their 52-week high.
% Below 52-Week High
General Steel (NYSE: GSI)
Source: Motley Fool CAPS. Results from Sept. 25 through Dec. 21.
The bottom case
Looking ahead, there are
several reasons why General Steel may be looking nowhere but up. The
Chinese producer is coming off of what it called its "best single
operating quarter in company history," when it generated record
third-quarter revenues, shipments, and income from operations -- not
surprising, given that China's stimulus program and the growth of the
second-tier cities there are benefiting a number of industries.
General Steel is experiencing strong demand for construction-related
steel, thanks to a high number of rural development and infrastructure
projects, at the same time companies like Ford (NYSE: F), Toyota Motor (NYSE: TM), and Honda Motor (NYSE: HMC) look to benefit
from an improving global auto market. And General Steel expects the
momentum to continue -- it has already locked in about 70% of its 2010
targeted sales volume and doesn't expect to have any trouble booking
the rest, because China has set lofty economic growth targets for next
year. With a lot of factors working in General Steel's favor, many CAPS
members see big upside potential for the shares.
Or dead cat in disguise?
But even though
General Steel may look spry these days, some investors are concerned
that China's rapid growth has spurred overcapacity across several
industrial sectors, which could have wide-reaching negative effects on
the supply and prices of commodities. U.S. companies such as Nucor (NYSE: NUE) and U.S. Steel (NYSE: X) are concerned about the effects it will have on global trade, while others like China-based WSP Holdings (NYSE: WH) have been struggling with lower domestic selling prices for products because of oversupply. While China has been on track to put up strong growth numbers,
the spending on big-ticket projects has soared, but some estimate that
steel production in mainland China has outpaced domestic supply by as
much as 30%. As such, some investors question the sustainability of
growth for companies like General Steel. And even though the company
might have a relatively low forward earnings multiple, the analysts who
follow it also estimate just a 6% growth rate over the long term, so
it's not exactly a bargain in Wall Street's view.
What's your call?
Overall, 97% of the
673 CAPS members rating General Steel are bullish and see it
outperforming the broader market. For my part, I find it tough to see
through an economic picture in China that is muddied with government
stimulus aimed at infrastructure. So while the news should be good for
companies like General Steel, I still put a lot of risk in those
"unintended consequences" and find it difficult to determine an
attractive price for the stock.
But what ultimately counts is your own opinion; CAPS is just there to help you form it. The best part is that the Motley Fool CAPS
database is all free, and you can even add your own insight on any of
the 5,300 stocks that our 145,000-plus members have covered.
© 2009 UCLICK L.L.C.