4 Profitable Stocks Taking a Beating
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Warren Buffett is known for his ability to take advantage of Mr. Market's mood swings -- "be greedy when others are fearful and fearful when others are greedy." Doing a screen for profitable stocks that have been punished by the market over the last 12 months and trade at reasonable P/Es could reveal opportunities. Mr. Market's mood swings are quite volatile and often a bit too extreme.
All four of these stocks' market values have taken a beating of 25% or more over the last 12 months.
- Cellcom Israel (NYSE: CEL)
- DeVry (NYSE: DV)
- Partner Communications (NASDAQ: PTNR)
- Dell (NASDAQ: DELL)
The Good Stuff
But despite a beating on the stock price, all four of these businesses remain profitable, trading at incredibly low price-to-FCF (free cash flow) and P/E ratios:
Cellcom Israel and Partner Communication's stock prices are both direct targets of typical market pessimism at its best. Israel has increased regulation on its telecommunication services and there are talks of even more regulation. But I believe the stock market has been a bit too harsh regarding the situation. Both Cellcom Israel and Partner Communications continue to pump out free cash flow for shareholders. Plus, telecommunications is quite necessary for Israel (isn't it everywhere?). It would not be beneficial for the Israeli government to erode telecommunications margins much lower.
Devry is a for-profit, online education company. 66% of its revenue comes from its undergraduate and graduate programs in business and technology fields. 27% of its revenue comes from its health-care segment, which offers medical and veterinarian programs and nursing and allied health degrees. Its expansion into health-care is worrying the market as it may put some pressure on margins, but it will add to the diversity of Devry's already somewhat diversified offerings.
Traditionally a PC maker, Dell is transitioning to an enterprise solution provider like IBM to combat declining PC sales. Although economic headwinds have been tough on Dell, its operational efficiency allows it to continue to churn out billions in free cash flow. This free cash flow will help Dell make the transition smoothly to enterprise solutions.
I'll let Warren Buffett finish up this article for me with one of his many famous quotes:
"The most common cause of low prices is pessimism -- sometimes pervasive, sometimes specific to a company or industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces. It's optimism that is the enemy of the rational buyer."
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