The myth that the market is "always right" is one that is perpetuated by the fear and zealous hype that sentiment entails. A company that drops 20% in a day over a bad earnings announcement was no less the same company the day before. Just as value is a subjected by several approaches to determination (ie. expected income, cost basis, etc), so too is the market approach just a single means of determining worth. For such investors willing to exploit pricing inefficiencies, having the foresight to determine a market overreaction from a tangible market collapse is sometimes no less a skill than it is a better understanding of the larger picture at hand.
The following companies compile a list of possible market leaders within their respective industries. Understanding the larger picture surrounding the industries and these particular companies may help determine whether or not they stand as viable value plays. Each of these companies are currently trading near or at their market lows in regards to recent history. All values were taken as of 2/28/2012.
|Name||Market Cap.||Fwd. P/E||Price/Book||Industry|
|Xinyuan Real Estate (XIN)||$190 M||1.77||0.33||Chinese Real Estate|
|Ultra Petroleum (UPL)||$3.70 B||15.65||2.32||Oil & Gas|
|DryShips (DRYS)||$1.31 B||8.49||0.34||Dry Bulk Shipping & Offshore Drilling|
|Corning (GLW)||$20.25 B||8.78||0.97||Specialty Glass|
Xinyuan Real Estate. China's rocketing real estate market has scared investors like a wobbling tower of Jenga tiles waiting to collapse. Yet China's recent easing of its monetary policy in light of a cooling property market may be indication that the concerns are overblown. As a real estate property developer operating primarily in Tier 2 and Tier 3 cities, Xinyuan is already relatively sheltered from the fallout of the larger markets of concern. Currently priced with a shocking price-to-earnings ratio below 2 and a price-to-book ratio at about 0.33, long-term investors who believe in the China story may never find a company trading at such a discount to its reality.
Ultra Petroleum. With the widespread adoption of hydraulic fracturing and horizontal drilling, an insatiable amount of natural gas has been discovered inside the shale rock formations found throughout the United States. Despite the performance improvement, this fundamental change in technology has single-handedly led to the decline in the natural gas exploration market as the increase in supply exceedingly outpaced the demand.
Currently dwelling at unsustainable levels for most producers, some exploration companies with exposure to liquids have shut down parts of their operations in light of unsustainable prices. It's here that Ultra Petroleum stands as a last-man-standing value play, capable of turning a profit on its wells when others call it quits. Although primed for a headstrong recovery when natural gas prices turn around, the uncertainty of this timeframe continues to keep Ultra trading at its currently reduced levels.
DryShips Inc. The dry bulk shipping industry has all but collapsed as spot charter prices have lulled at their bottom lows in light of expanding shipping capacity over the past year. Touching lows, only those with significant amounts of locked-in charter rates appear to be sailing smooth during this rough patch for the industry. Yet for shipping hybrid DryShips, the unconventional move a few years back to diversify its operations from a pure-play dry shipper into one that adds an offshore drilling segment has proven to be an invaluable maneuver for the company.
As its subsidiary Ocean Rig (ORIG) takes advantage of high oil demand pricing, DryShips continues to prospers from the stable revenue offsetting its struggling dry bulk shipping business. With recent contract wins from Petroleo Brasileiro SA (PBR), Ocean Rig's future appears well anchored for the parent company that has often been the victim of harsh criticism for its management.
Corning. With a struggling economic recovery, the near-term outlook for popular consumer products such as large screen LCD TVs remains hazy at best. So too has the outlook for solar panels as the industry suffers from the poison of uncertainty and stalled sales growth. For specialty glass maker Corning, such markets have continued to weigh heavily on its performance stoking investor fears of a value trap. Yet paving the way for the future, the company's ongoing commitment to innovation has allowed for it to unlock a new wave of possible products affecting everything from organic light emitting diodes (OLEDs) to thinner phones. Raising their dividend and limiting their capital expenditure commitments, the company may be poised for a healthy recovery as its cash flows increase and products become evermore necessary for the future.