NEW YORK (Stockpickr) -- If only the investing year could have ended on June 30. The stock market looked quite healthy back then, capping off a 100% gain for the S&P 500 over the prior 27 months.
The rest of the year has been quite painful -- to say the least. The market indices have made neck-snapping moves. Thanks to a sharp October rebound, the market is likely to finish the year just a few percentage points lower than it began, but on a company-by-company basis, things don't look quite so placid. Many stocks are 20%, 30% or even 40% this year.
In the S&P 500 alone, 60 stocks have fallen at least 30% this year, and a handful of dogs by twice as much. Yet these 2011 laggards also can be seen as a source of fresh opportunity. Now that they have been discarded by the crowd, their valuations are stunningly cheap.
, all of which have fallen at least 30% this year, all trade for less than eight times projected 2012 profits. Frankly, it's hard to see how they can fall much further, with such low valuations already in place -- and with a slight change in momentum, they could be the leaders of 2012.
Here's a closer look at
Investors are too emotional about
. When bankruptcy fears loomed in 2008, shares fell below $2 (even though bankruptcy looked highly unlikely). When the auto industry got back on its feet in 2009 and 2010, investors couldn't get enough of this stock, quickly pushing it to $20 as analysts spoke of $25 and $30 price targets.
These days, a so-so economy has pushed Ford right back out of favor, and its stock has fallen nearly 40% this year, down near $10.
The lousy stock performance is at odds with the reality on the ground. Ford is selling more cars and trucks -- and making more money on every one sold. Sales are on track to rise 15% this year to $128 billion. Sure, that's a far cry from the $177 billion in revenue Ford had back in 2005. Then again, Ford only managed to earn $0.86 a share that year. Thanks to robust profit margins these days, Ford will earn nearly $2 a share this year.
2012 Stock Predictions and Outlook
To be sure, 2012 represents real challenges, which is why shares are trading down in 2011 (as investors always look ahead). Ford's profits will be flat to slightly down in 2012 and sales growth will be anemic. But over the course of 2012, investors will start to look out to 2013 and beyond, and with a little back-of-the-envelope math, they should see that Ford is capable of earning $3 a share by 2013 or 2014 -- and perhaps $4.50 a share by 2015 as consumers replace again cars.
This is a $10 stock! At some point soon, investors will stop fearing another auto industry meltdown and embrace this very cheap stock.
Ford, one of TheStreet Ratings'
, shows up on a recent list of
The Meg Whitman honeymoon has already ended.
new CEO was greeted warmly this fall, and over the course of November, analysts started to suggest that she would install a solid turnaround plan in 2012 for this broken-down tech titan.
That burst of euphoria fueled a 20% gain over the last three months, but after a recent near-term peak on Dec. 9, shares have been falling daily, giving back half of the gains seen earlier in the quarter.
Whitman's turnaround will take a lot of time and effort. This is a company with $124 billion in annual sales and feet of clay. Yet it's hard to avoid the fact that shares trade for just six times trailing earnings.
HP may be slow to generate solid sales growth, but is undeniably profitable, and it's still a key player in so many technology niches. The ride back to $30, $35 or even $40 will be bouncy as many potholes lay ahead, so this is a company to own and put away.
HP, also one of the
, is one of TheStreet Ratings'
and shows up on a list of
Let's pretend for a moment that the financial meltdown of 2008 never happened. If you exclude that short but painful era (which pushed this stock below $10), then it has otherwise traded in a fairly predictable range over the last five years. Copper miner
saw its shares climb to $60 in early 2008 and early 2011 when the global economy looked healthy and demand for copper appeared solid.
Conversely, when investors are concerned that the global economy will be weak -- and demand for copper will slump -- shares of Freeport McMoran slid down to the $30 to $35 range, as was the case in the summer of 2010 and again here as 2011 winds down.
With such pessimism built into the stock price, is time again to buy? Merrill Lynch thinks so. The just-announced resolution of a strike at a key Indonesian mine removes the risk that copper output will fall in 2012. So Merrill Lynch thinks that shares should rebound from a current $37 to $55 (which is still $10 a share below the net asset value of the company's mines).
On an operating profit basis, Merrill thinks shares are worth $53.50, but there's no sense splitting hairs as we're talking sub-$40 stock.
For another take on Freeport, one of TheStreet Ratings'
, check out "
Appliance repairmen have been busy this year. Consumers are holding onto washing machines, dryers and dishwashers longer to avoid paying up for new units, so it's easier just to fix them rather than replace them. Indeed the outlook is dim for "white goods" manufacturer
, as analysts currently expect EPS to fall more than 30% in 2012 to around $6.25.
With that dismal profit outlook in mind, shares still appear attractively valued at around 7.5 times projected profits. But perhaps that forecast is simply too bearish. After all, recent improving employment trends should translate into rising consumer confidence as 2012 unfolds.
For the sake of being conservative, let's assume that Whirlpool only muddles through 2012 and has to wait until 2013 for a rebound. Well, the company earned more than $9 a share in both 2010 (and is likely to do so in 2011 as well). If EPS rebounds to $9 in 2013, then the forward multiple drops below 6.
It won't take a robust 2012 for this stock to rebound next year. Only a sense that results in 2013 and beyond will start to look better. And about that $9 a share in earnings power that Whirlpool showed in 2010 (and likely again in 2011). That came during a very weak economy. Imagine what Whirlpool could earn when the economy is back on its feet.
Whirlpool also shows up on the list of
As an honorable mention, I would toss
, one of TheStreet Ratings'
, into the mix of rebound candidates. It's a well-run company with prodigious cash flow, and a move into services may deliver more robust sales growth in coming years than many currently expect. Trading under seven times projected 2012 profits, it's a certifiable bargain.
To see these stocks in action, visit the
portfolio. These companies are part of a clear trend: Good businesses with bad stock prices. For long-term investors, that can be the best time to wade in.
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At the time of publication, author had no positions in stocks mentioned.