Some of the greatest quotes in finance relate to finding investment opportunities by going against the grain such as this quote by the great Benjamin Graham: "buy when most people...including experts...are pessimistic, and sell when they are actively optimistic."
With that in mind, we thought we would look at a couple of stocks where investors are undoubtedly incredibly pessimistic, Turquoise Hill Resources (ticker: TRQ) and Blackberry (ticker: BBRY). (Note: bottom fishing individual companies is always inherently more risking than bottom fishing industries or sectors because individual companies can always go to zero, while it would be incredibly unlikely for an entire industry or sector all goes bankrupt at the same time)
TRQ and BBRY have been the worst performing stocks in the MSCI North America Index over the past four years. Their stock prices have declined by 84-85% during this time period (while the average stock, is up an impressive 75%).
20 Worst Performing Stocks In The MSCI North America Index
TRQ falls in the diversified metals and mining sub-industry, which is in the materials sector. TRQ currently trades at a 5-year normalized intangible-adjusted price to book ratio of 0.8x. Shockingly, TRQ isn't trading at the lowest P/B in its sub-industry (Teck Resources takes that honor at 0.6x). TRQ traded at a 5-year normalized intangible-adjusted P/B ratio of over 10x from 2008-2010. TRQ basically has zero net debt, however, it also has a negative ROA and ROE.
5-year Normalized Intangible-Adjusted Price To Book Ratio
Net Debt As A % Of Capital
Return On Equity
The strongest reason for bottom fishing TRQ is a technical one. TRQ is down "only" 11.6% in the past year. Of the 20 worst performing stocks over the past four years, only BBRY has had better performance over the past year. Most importantly, TRQ has finally broken through the down trend line that has been in place since 2012. It is too early to say whether or not this breakthrough is here to stay, however, this is the first step towards forming a base and a sign that the persistent downtrend of the last few years could be over.
BBRY falls in the technology hardware storage & peripherals sub-industry, which is in the information technology sector. Blackberry currently trades, on a intangible-adjusted 5-year normalized basis, at the lowest P/CF, P/S and P/B value of any of its competitors. It currently trades at just 0.6x intangible-adjusted book value and just 0.5x sales. HP is the only other company that trades at a normalized P/S ratio less than 1. BBRY used to trade at normalized P/S ratio between 14x-50x in the period from 2003-2008. Blackberry's balance sheet is still strong. They have negative net debt (like most of the sub-industry) and 20% of its assets are in cash. They currently have an operating cash flow yield of 23%.
Intangible-Adjusted Normalized Valuations
Intangible-Adjusted Normalized P/S Ratio
Intangible-Adjusted Balance Sheet
From a technical perspective, BBRY is further along than TRQ. BBRY's stock price was actually up 90 basis points last year. BBRY has put in a relative performance base for over 2 years. This stock is undoubtedly volatile but for deep value, long term investors it could be worth taking another look at.