Below are 10 companies that have been sold off sharply since the markets' highs in July and still have great earnings potential, sustainable fundamentals and balance sheets, and are giving extreme oversold signals on a technical basis. These are speculative plays that will likely come back into favor, and possibly see institutional interest as the market recovers and prices stabilize. Invest at your own risk and do your own research, but here is a quick take on the names with some “common sense” analysis:
Natus Medical (BABY), Medical Equipment: The newborn product producer has fallen from the $26 level to $9, following recent earnings announcements. Shares now trade 11.2x forward earnings, 1.17x book, and 3.8x cash while continuing to project 20% plus sales growth for the foreseeable future. With no debt on the books, the company could also make a nice takeover candidate for larger pharmaceutical companies looking to dive into the newborn device market.
Hercules Offshore (HERO), Oil Exploration: The shallow water driller has seen a rash of insider buying as shares have fallen from July highs around $40 to a price under $5. Trading at an 80% discount to book value, 3.9x cash, and maintaining stable liquidity should allow Hercules to turn around once the commodity environment stabilizes.
Sunstone Hotel Investors (SHO), Hotel REIT: The hotel owner has come upon hard times as travel and tourism comes to a screeching halt, and credit markets dry up making new projects unlikely. However, shares are now only trading at 1.32x cash, 0.24x book value, and the company came out today maintaining 2008 guidance. Many real estate moguls are forecasting a turnaround later this year, and Sunstone should shine again after shares have been cut by a multiple of 3.
Chicos (CHS), Apparel Store: Retail sales are at the lowest levels in memory and Chicos is not exactly the hottest brand on the market, but it does have value as a brand addition to a larger retailer. Shares trade at $3.50 and the company has $1.45 per share in cash and zero debt. Options activity has pointed to a possible acquisition later this year, and it would make sense. The company recently named a new CEO and will try and turn around here, after trading above $8 earlier this year.
A-Power Energy (OTC:APWR), Chinese Utility: The Chinese utility company has formed a very supportive bottom on the charts and trades only 4x next year’s earnings. With expansion expected in China utilities and A-Power also having a major presence in wind-power energy, shares have the potential to soar in coming years as real earnings begin to flow in. Shares trade 2.85x cash and the company has no debt, and the recent joint venture with General Electric gives the company more clout.
Navios Maritime (NM), Dry-Shippers: The Baltic Dry Index has bottomed, it is that simple, and although the shipping companies are still struggling to regain higher rates, there will come a time when the global economy bounces back, and the shippers will be in for smooth sailing once again. The other large worry of difficulty in the credit markets for the high fixed cost ships that are leased is also passing, as companies have effectively amended credit agreements. Navios trades 1.25x trailing earnings, 1.01x cash, maintains a 10% dividend yield, and has plenty of liquidity to make due on all upcoming liabilities.
Nvidia (NVDA), Specialized Semiconductor: Global chip sales are plummeting at a record rate, and everyone knows it. However, computers are not going away any time soon and Nvidia is the leading graphics chip maker in the market, and is a bargain at $7.50. Also mentioned as a frequent takeover target, shares now only trade 3x cash and 0.95x sales. Sales outlooks have come down, but effective cost controls have been implemented, and on a cash flow basis, shares are very cheap here, and traded as high as $26 in June.
Canadian Solar (CSIQ), Solar Modules: Solar stocks have come down from space after crude oil sold off, margins contracted, and efficiency ratios have not grown fast enough to make the technology plausible. However, governmental stimulus efforts will keep the move towards green energy alive, and it is just a matter of time before the technology becomes cost efficient. Canadian Solar trades 0.23x sales, 1.5x cash, and 0.47x book value and has a high ROE of 18.73%. Earnings could struggle this year, but a turnaround is in sight. CSIQ also saw some very bullish options positioning in recent days.
Polypore International (PPO), Specialty Chemicals in Electronics: Polypore shares have climbed from lows of $4 to $6 in recent weeks, but are still a ways from the $30 level seen in September. Now, shares trade 8x forward earnings, 0.68x book value, and 3.74x cash. The CEO spent much of early December accumulating shares in the company around $4.20, and that should be seen as the bottom in the stock. PPO will experience a turnaround once its buyers (electronics, electric vehicles, etc.) begin to see a pickup in demand.
AK Steel (AKS), Steel: Just a few months ago, AK Steel was rumored to be a takeover candidate for around $60 a share, and now, at $9.50, this is a steal of a steel stock. AK trades 1.9x trailing earnings, 0.13x sales, and 2.3x cash. Steel production cuts will put a floor in on pricing, and once global demand from government infrastructure stimulus kicks in, the steel stocks will see demand pick up. Many commodity funds spent the end of 2008 dumping anything associated with oil, steel, coal, and agriculture, but there will come a time when the big guys are diving back into these stocks.
Please note that I did this very quickly, based on what I know about these industries and some of the stocks. I do not pretend to be an expert on any of these individual names, but if you see a name of interest, take the time to look into it, because speculative plays are looking like a nice strategy in this volatile market.
Disclosure: no positions