When a stock such as Apple (Nasdaaq: AAPL)
or Chipotle Mexican Grill (NYSE: CMG)
is universally loved, you should think twice about buying in, lest you arrive as the euphoria starts to fade. Instead, look for stocks that aren't being chased by the crowd. These stocks often hit a rough stretch, get shunned by many growth and momentum investors and soon find themselves being valued at a fraction of their former highs.
In this unforgiving market, there's no shortage of lagging stocks. Some deserve to be shunned because business is likely to remain lousy, valuations don't look attractive -- even after a big sell-off -- and few catalysts are in place for a rebound. But I've developed a list of stocks that should hold appeal. They've all fallen more than 50% from the 52-week high, are expected to post rebounding results in 2012, and most importantly, now trade for less than 10 times projected 2012 profits. Not only do these stocks possess considerable upside when business rebounds, but they also offer more downside protection if the market falls even lower, thanks to those low price-to-earnings (P/E) ratios.
A few stocks immediately jump out for attention. OfficeMax, (Nasdaq: OMX), which trails Staples (Nasdaq: SPLS) and Office Depot (NYSE: ODP) in the office supply retail category, is struggling with anemic sales growth. Yet as is the case with Office Depot, which I discussed in this article, management is at least doing a better job of controlling gross margins and operating expenses. OfficeMax just delivered a $0.07 quarterly profit, ahead of the break-even forecast. Is the company healthy? Not yet, but the sharp plunge in the stock appears to have run its course.
I also noted that Axcelis Technologies (Nasdaq: ACLS) makes the cut. I came across this company when I saw that it was selling at a sharp discount to a rival that had just been acquired.