The much-anticipated initial public offering for Facebook (NASDAQ:FB) finally took place, and even though it received massive media coverage, the stock had a relatively small initial pop at the open, and closed just about 23 cents above the IPO price of $38 per share.
While Facebook has an incredible business that is poised for growth, the stock is already priced for a lot of good news. This is one reason the stock did not get a big move up on the IPO, and other reasons include the fact that the IPO was priced at the high end of the range (which was between $28 to $38 per share) and also because the underwriters increased the size of the offering, which put more supply on the market. It looks like greed got the best of some people involved in the offering. Many recent Internet IPO's like Zynga (NASDAQ:ZNGA), and Yelp (NYSE:YELP) underperformed within weeks of their debut. Facebook could be poised to do the same. Smart investors should avoid the hype, allow the stock to settle out, and focus on the real bargains that are available now.
Often the best way to make money is to avoid fads and market hype and target stocks that investors are temporarily ignoring. This allows for buying deep-value stocks that have major potential for outsized gains. With the markets down sharply and deeply oversold in the past couple of weeks, it makes sense to do some buying as the market is due for a rally any day now. Here is a closer look at Facebook, and a few stocks (below) that offer investors a chance to get in cheap before a potential rebound:
Key Data Points For Facebook From Yahoo Finance:
Current price: $38.23
52-Week Range: $38 to $45
2012 Earnings Estimate: 49 cents per share
2013 Earnings Estimate: 60 cents per share
P/E Ratio: about 78 times earnings
Tutor Perini Corporation (NYSE:TPC) has significant upside potential due to a major recent drop in the stock price. This company is a construction and engineering leader with a focus on major hotel, casino and infrastructure projects across the United States, and even abroad in some cases. It was a contractor for well-known projects like The City Center in Las Vegas, the Santa Monica Hospital, the San Jose Arena and many others. While investors recently sold off the stock because of an earnings miss, long-term investors should be focused on the fact that the stock is way too cheap now, plus the company has a backlog of work that is worth about $6 billion dollars!
A big sell-off for a one quarter earnings miss can be a great buying opportunity, especially since the miss was due to when contracts where booked. Plus, the company affirmed the guidance for 2012, which puts revenues between $4.5 to $5 billion and earnings at $2.10 to $2.30 per share. That gives this stock a price to earnings ratio of just about 5 times earnings. I think this stock is poised for a short-term rebound to about $14-$15 per share, but in the longer-term it should climb to around $20 or so. The consensus analyst price target for this stock is about $23 per share, which would provide huge upside from current levels.
Key Data Points For Tutor Perini From Yahoo Finance:
Current price: $11
52-Week Range: $10.08 to $20.49
2012 Earnings Estimate: $2.10 to $2.30 per share
2013 Earnings Estimate: $2.40 per share
P/E Ratio: about 5 times earnings
Freeport-McMoRan Copper and Gold (NYSE:FCX) shares have plunged amid concerns over a global recession. As risk-averse investors sell stocks and gold to raise cash, it has been a double-whammy for this company as it is a major producer of gold. It also produces significant amounts of copper which is economically sensitive. Copper is used in construction and China is a leading consumer of this industrial metal. With many signs pointing to slower growth in China, copper prices have also been weak and added further downside pressure to this stock.
However, it looks like investors might be overreacting. As far as copper demand from China goes, it is important for investors to realize that in the long run, the country will continue to grow. A slowdown in China means it might "only" grow about 7% rather than 10% or more. Also, if China sees the economy weaken too much, interest rates are likely to be cut and that will boost demand. Gold has been another concern and it has been dropping sharply. However, in the past couple of days it has rebounded close to $1,600 per ounce.
One theory is that investors had been selling gold to raise cash as the markets have been in correction mode. But now investors are getting back into gold because the world stock markets and rapidly weakening global economies just about guarantee that the Federal Reserve, the European Central Bank and other policy makers will be forced to take additional measures such as injecting capital, lowering rates, and basically printing money to reflate the economy and restore investor confidence. Historically, countries solve debt problems by printing money and this is usually very bullish for gold and other hard assets. With Freeport-McMoran shares at close to half the 52-week high, it makes sense to consider this stock for its cheap valuation and solid dividend.
Key Data Points For Freeport-McMoRan From Yahoo Finance:
Current Price: $31.81
52-Week Range: $28.85 to $56.78
Dividend: $1.25 which provides a yield of 3.8%
2012 Earnings Estimate: $4.03 per share
2013 Earnings Estimate: $5.23 per share
P/E Ratio: about 8 times earnings
Chimera Investment Corporation (NYSE:CIM) shares have seen a recent pullback, and now look much more interesting for a potential rebound as well as for the huge dividend yield. This company is set up as a mortgage real estate investment trust (REIT) and by law, it must pay out the bulk of its earnings to shareholders. Chimera is externally managed by Fixed Income Discount Advisory Company, which is a wholly-owned subsidiary of Annaly Capital Management, Inc. (NYSE:NLY). The dividend appears safe as it is covered by the earnings estimates. One recent event that is keeping some investors on the sidelines is that Chimera dismissed its auditor, which has caused some delays in filings. It doesn't mean there is a major problem, but some investors consider these types of events as a concern. If Chimera gets everything back on track, the stock has rebound potential.
Key Data Points For Chimera From Yahoo Finance:
Current Price: $2.72
52-Week Range: $2.38 to $3.95
Dividend: 44 cents annually which yields 16.2%
2012 Earnings Estimate: 47 cents per share
2013 Earnings Estimate: 45 cents per share
P/E Ratio: about 7 times earnings
Data is sourced from Yahoo Finance. No guarantees or representations are made. Please consult a financial advisor before making investments.
Disclosure: I am long TPC.