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The Gist

The market sold off last week with the Dow down significantly posting the biggest two day drop in 2012. The Dow has dropped below its 200-day sma for the second time this year. This is a major technical milestone for the market. The last time this occurred back in July it proved to be an excellent buying opportunity. See chart below.

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Chart provided by CNBC.com

Whenever major milestones are achieved it is always prudent to review your current positions and assess the stocks on your watch list for potential buying opportunities. Market corrections often provide the opportunity to purchase stocks in solid companies at a discount price. With the proliferation of ETFs and Index funds, stocks are sold off indiscriminately. Volatility and correlation in stocks increases as well. The following are five stocks I feel have significant upside potential in the coming years that are selling at a discount currently.

The Goods

The stocks selected are trading on average 29% below their 52-week highs and have 30% upside potential based on analysts' 12 month price targets. This fact alone carries little weight, but it's a good starting point when looking for buying opportunities.

In the following sections, we will perform a review of the fundamental and technical state of each company to determine if this is the right time to stay with the position or sell out. The following table depicts summary statistics and Monday's performance for the stocks. The following charts are provided by Finviz.com.

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Apple Inc. (AAPL)

The company is trading 22% below its 52-week high and has 40% upside potential based on the analysts' mean target price of $767 for the company. Apple was trading Monday for $544.22, down almost 1% for the day.

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Fundamentally, Apple is still vastly undervalued. Apple has a fortress balance sheet and rock solid fundamentals. Apple is trading for 12 times free cash flow. Apple's PEG ratio is .59. Apple's quarter over quarter EPS and sales growth rates are 27% and 23% respectively. Apple's net profit margin is 26.97%. Apple's ROE is 42.84%, no debt and a significant cash hoard.

Technically, the company is still in a well-defined up long term uptrend, yet has sold off after two explosive parabolic moves higher.

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The recent selling could be attributable to a sell your winners prior to year end policy many investors are beginning to employ. The thought process is take profits not before the capital gains tax going up significantly in 2013. In any event, I see this as a healthy development for the stock.

Apple's stock appears to exceed my expectations in my three main areas of concern when evaluating a stock. Apple's near-term product catalyst is the iPad Mini and the iPhone5 released just in time for the holiday season. Fundamentally, the company has a fortress balance sheet and is selling at a steep discount to its peers. Technically, the stock has recently gone through a major correction of slightly over 20%. I like the stock here, but it could test the $500 mark prior to year end.

Citigroup, Inc. (C)

The company is trading 5% below its 52-week high and has 17% upside potential based on the analysts' mean target price of $42.85 for the company. Citigroup was trading Monday for $36.63, up nearly 2% for the day.

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Fundamentally, Citigroup has several positives. The company has a forward P/E of 7.74. Citigroup is trading for approximately half of book value. The company has a PEG ratio of 1.44 and a net profit margin of 10.95%. Citigroup insider ownership has increased by 60% over the past six months. Last week, Director William S. Thompson bought 6,850 shares of stock.

Technically, the stock has been in a well-defined uptrend for the past quarter. The golden cross was recently achieved at the beginning of October. This is a bullish indicator that has served me well. Recently the stock has pulled back, yet is still trading 6% above the 50-day sma.

Citigroup beat earnings estimates in October. Inc. The bank reported net income for the third quarter 2012 of $468 million on revenues of $14.0 billion. The next day CEO Vikram Pandit stepped down following a clash with the board over strategy and performance. Citigroup named Michael Corbat, a Citigroup veteran, as Mr. Pandit's successor. I think the fresh blood will serve Citigroup well. I like the stock long term. It appears there are some bottom fishers already nibbling at the stock today based on the price action.

Cisco Systems, Inc. (CSCO)

The company is trading 19% below its 52 week high and has 28% potential upside based on the consensus mean target price of $21.74 for the company. Cisco was trading Monday at $16.97, up almost 1% for the day.

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Fundamentally, CSCO looks solid. The forward P/E ratio is 8.09. Cisco's quarter over quarter EPS and sales growth rates are 5% and 60% respectively. Cisco's net profit margin is 17.46%. Cisco has a dividend with a yield of 3.33%. The company is trading at 10 times free cash flow.

Technically, Cisco is in a down trend. On a positive note the stock did close the gap created in mid-August. In my prior missive on the stock, I stated to wait for this gap to be closed prior to starting a position. The stock just achieves the golden cross which is bullish. Nonetheless, the stock has broken through support at the 50 and 200-day smas recently.

I posit the need for security improvements as the growth of people transacting on their mobile devices will soon outweigh the impact of an economic downturn. Cisco's issues are transitory, but I would wait for a better entry point after earnings. The risk/reward of starting a position prior to earnings is not favorable. Cisco CEO John Chambers seems to always somehow stick his foot in his mouth. He likes to under promise and hopefully over deliver. I do not see him raising guidance just yet. I do believe the tide will turn for Cisco in the near future and therefore Cisco is a long term buying opportunity.

Facebook Inc. (FB)

Facebook is trading 58% below its 52 week high and has 50% potential upside based on a consensus mean target price of $28.75 for the company. Facebook was trading Monday for $19.95, up nearly 4% for the day.

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Facebook's fundamentals are mixed. The company has a forward PE of 30. Facebook is trading for 190 times free cash flow. EPS for the next five years is expected to rise by 27%. Sales are up quarter over quarter and the company has a net profit margin of 6%.

Technically, Facebook looks poor, but seems to have found a bottom at the $20 level. Recently the stock attempted to break out to the upside, but failed twice to hold above the 50-day sma.

Facebook's performance as a public company has been ironically anti-social. The company has lost over 40 billion dollars in value since coming public. The infamous IPO debacle, the Achilles heel of mobile advertising and the impending tsunami of shares to be released from lock up have plagued the stock. Nevertheless, I posit the next and largest portion of stock due to be released from lock up on November 14 of 1.3 billion shares owned by venture capitalists and insiders including Zuckerberg may be a buying opportunity for investors.

The new attitude of Facebook's management impressed me. Also, mobile revenues were up substantially last quarter and the new revenue stream created by introducing the gift program for friends intrigues me. This is a change in stance from me regarding the stock. Look to pick up shares of Facebook after the main traunche of shares is released from lock up.

Starbucks Corporation (SBUX)

The company is trading 17% below its 52 week high and has 16% potential upside based on the consensus mean target price of $59.13 for the company. Starbucks was trading Monday at $50.75, down almost 1% for the day.

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Fundamentally, Starbucks looks solid. Starbucks' quarter over quarter sales growth rate 11%. Starbucks' net profit margin is 10.41%. Starbucks has a dividend with a yield of 1.65%. The company has a PEG ratio of 1.59 and a ROE of 29%.

Technically, Starbucks is attempting to rebound from a choppy last few quarters. The stock recently popped 10% on November 1st as earning beat expectations. The stock gapped up and is currently testing resistance at the 200-day sma.

Regarding earnings, net income was relatively flat at $359 million, up from $358.5 million a year earlier. Profit per share was 46 cents beating the street's average estimate of 45 cents, according to data compiled by Bloomberg. The company recently released a new machine for home brewing and still has exponential international growth projected for the foreseeable future. I would wait for the stock to cool down some prior to starting a position though. The recent 10% pop and associated gap up will most likely come in some prior to year end.

The Bottom Line

A good hockey player plays where the puck is. A great hockey player plays where the puck is going to be. - Wayne Gretzky

This is a great quote from Gretzky. I believe it pertains to the current situation in the equity markets. You have to buy low to sell high. If you only buy stocks when everyone is raving about them you will most likely end up on the wrong side of the trade.

Stocks are currently out of favor. The market began to drop precipitously last week as investors took profits and stepped to the sidelines as the looming fiscal cliff approaches. Nevertheless, I see the sell off as a buying opportunity. The market always bounces back. This is a buy on the dip scenario. Let's not forget, the world's central banks have been taking action and the Bernanke put is firmly in place.

Source: 5 Stocks To Buy For The Next 4 Years

Additional disclosure: This is not an endorsement to buy or sell securities. Investing in securities carries with it very high risks. The information contained within this article for informational purposes only and is subject to change at any time. Do your own due diligence and consult with a licensed professional before making any investment decisions.