Wall Street Is Catching Up With Three Bargain Basement Stocks

Disclosure: I own shares of DHI

 Goldman Sachs (NYSE:GS), First Solar, and Horton D.R (NYSE:DHI) are in totally different businesses. But they have one thing in common. They’ve all been in the bargain basement list of February 2015 Value Line.

At that point in time, First Solar traded at 12-times next December’s earnings, at 339% Price-to “Net” working capital, and at 100% of Price-to-Book Value. D.R. Horton was doing better in two out of these three metrics. And Goldman Sachs was performing better in all three metrics.

+Finance.yahoo.com

*Value Line, February 13, p. 37. “Net working capital equals current assets less all liabilities including long-term debt and preferred."

All three companies maintain leading positions in their own industries. But they have been out of investor favor, for different reasons.

First Solar is a fallen angel of the alternative energy craze, when the stock was trading north of $300. The recent crash in oil prices has been adding to the company’s woes.

D. R. Horton is a fallen angel of the housing bubble, when it was trading north of $40.

And Goldman Sachs still suffers from the after-shocks of the 2008-9 crisis that followed the collapse of the housing bubble.

But things may already be turning around for all three companies.

D. R. Horton, for instance, has been experiencing a number of tailwinds recently. The low end housing market, where D.R Horton sells new homes, has gotten boosts from the improving US labor market, the ultra-low mortgage environment, the easing of rules for first time buyers, and tight home inventories – all of which are pushing home prices higher.

First Solar has taken a number of initiatives to enhance shareholder value -- like an alliance with Apple, and a shared spin-off with Sunpower, which was announced recently.

Goldman Sachs has been gaining billions of dollars by assuming stakes in different funds in the last five years.

That could explain why Wall Street has been warming up to all three stocks lately, and why they have outperformed the S&P 500.

Source: Finance.yahoo.com

 The bottom line: Contrarian bets pay off, providing that investors have the patience to wait for their time to come.