I’ve found two stocks that have fallen greater than 20% since they were purchased by two extraordinary investors. They both warrant further investigation.
Multimedia Games (MGAM)
Multimedia Games is in the business of developing and providing gaming and gambling services mainly to casinos. Seth Klarman has been buying shares since late 2006 and has bought shares in the $8-10 range. If Klarman was buying shares of MGAM with a margin of safety then, there’s a good chance that the margin of safety has increased now that the price of the stock is at $4.68.
Some notable quantitative factors:
- P/B ratio is 0.79
- P/S ratio is 0.95
- The P/E ratio for the trailing twelve months is 34.62, a very high multiple for a traditional value investor. However, the forward P/E is a much more reasonable 11.84
- Insiders own 11.31% of the company
UnitedHealth Group (UNH)
UnitedHealth Group is a diversified health care servies company. Warren Buffett recently added to his position. The lowest point at which Buffett could have purchased these shares is $34.37. The stock is now $30.74.
Some notable quantitative factors:
- P/S ratio is 0.50
- P/E is 8.76 and Forward P/E is slighty lower at 7.73
- Annual EPS growth over the past five years has been a fairly impressive 26.33%
- Current ratio is 0.73 – a company that has more current liabilities than current assets is at a disadvantage in market downturns when credit is tight
Both these companies intrigue me simply by virtue of the quality of investors that have invested in them. The fact that Klarman has added to his position in MGAM while the stock has declined is certainly indicative of his confidence the stock is undervalued.
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