The stocks covered in this article are well positioned to rally based on macroeconomic, sector or company specific catalysts coupled with fundamental buying opportunities. However, many are trading at significant discounts to their 52 week highs and consensus estimates. With many stocks trading near all-time highs, I have selected five stocks that still have upside potential. I posit they are worth a look.
Additionally, the five stocks are trading at or below $5. Stocks trading for $5 or less tend to be more volatile with frequent, larger percentage moves in the stock price. This provides the opportunity for greater returns (or losses) relative to the market or more bang for your buck so to say.
In the following sections, we will perform a review of the fundamental and technical state of each company followed by an analysis of the underlying catalysts and downside risks for the stocks. The following table depicts summary statistics and Tuesday's performance for the stocks. The following charts are provided by Finviz.com.
MEMC Electronic Materials Inc. (WFR)
The company is trading 17% below its 52-week high and 32% upside potential based on the consensus mean target price of $6.18 for the company. WFR was trading Tuesday for $4.76, up over 6% for the day.
Fundamentally, WFR has some positives. The company has a forward P/E of 10. The company is trading for approximately two times book value and 44% of sales. WFR's EPS is up 99% quarter over quarter and expected to rise by 135% next year.
Technically, the stock has been on a roll and is in a solid uptrend. All major moving averages are now trending upward and the golden cross has been achieved. Nevertheless, the stock is currently not overbought with an RSI of 56.
MEMC's SunEdison unit has reached a solar module outsourcing deal with Foxconn's solar manufacturing arm. Module prices and margins have crashed amidst a massive global oversupply. MEMC will effectively lower its manufacturing overhead and capital expenditure needs by this move.
I'm in the bull camp and see this as an excellent buying opportunity. I may start a position prior to the upcoming earnings report.
Frontier Communications Corporation (FTR)
The company is trading 18% below its 52-week high and has 15% upside potential based on the consensus mean target price of $4.64 for the company. Frontier was trading Tuesday for $4.05, flat for the day.
Frontier has some fundamental positives. Frontier pays a dividend with a yield of 10%, yet don't buy the stock for the dividend only. The company is trading for book value, 80% of sales and has a forward P/E of $19. The company's gross margin is 91.19%. The stock is trading for 11 times free cash flow.
Technically, Frontier has been in a downtrend since late August of 2012. It has been in a slight downtrend though and the stock has mostly moved sideways. Recently the stock has begun to tick up. The 200-day sma has leveled off and started to trend upward which is positive.
The stock has a high short interest, which could serve as catalyst for a significant short squeeze if Frontier can increase High Speed Internet subscription rates. Frontier is currently trading at decade lows. The company reports earnings on May 6th. I would wait until after earnings to start a position.
Nokia Corporation (NOK)
The company is trading 36% below its 52-week high and has 10% upside based on its consensus mean target price of $3.48 for the company. Nokia was trading Tuesday for $3.16, up slightly for the day.
Fundamentally, Nokia has several positives. Nokia is trading for 1.17 times book value, 32% of sales and has $3.54 in cash per share. EPS next year is expected to rise by 133% and is up over 70.73% quarter-over-quarter.
Technically, the stock seems to be forming a bottom at the $3 mark. The stock has been in a free fall since the start of the year giving back all its gains. The stock is now trading at the 200-day sma.
According to Bloomberg, Verizon (VZ) is set to unveil a plan next month for the anticipated Lumia 928. The Lumia 928 is said to feature a 4.5" display, metal body, 8MP camera, and wireless charging support. With Microsoft's backing, the launch of new phones and the recent contract win in China, the risk/reward ratio in the stock seems favorable at this point. The stock is a buy here.
SandRidge Energy, Inc. (SD)
The company is trading 44% below its 52-week high and has 28% upside based on the consensus mean target price of $5.90 for the company. SandRidge was trading Tuesday for $4.61, down slightly for the day.
Fundamentally, SandRidge has some positives. SandRidge is trading for slightly less than book value. SandRidge has a net profit margin of 9.03%. Quarter-over-quarter sales and EPS are up 258% and 35% respectively. Insider ownership is up over 28% in the last six months. The PEG ratio is 1.67.
Technically, the stock has been in a bearish downtrend. The stock bounced down to $4.60 currently and is consolidating at this level just above the 52 week low.
SandRidge's new board is taking steps to reduce costs a month after a proxy battle ended with TPG-Axon. SandRidge says it engaged law firm Mayer Brown to review allegations against CEO Tom Ward. The review should be completed by June 15.
I posit the stock may be near a bottom. many of the weak hands have been shaken out as the stock dove below $5. The stock is a buy here, but definitely scale in to the position.
Zynga, Inc. (ZNGA)
The company is trading 67% below its 52-week high, and is trading 20% upside based on the analysts' mean target price of $3.82. ZNGA was trading Tuesday for $3.18, down nearly 2% for the day.
Fundamentally, ZNGA has a few positives. EPS is expected to grow by 120% next year and 21% over the next five years. The stock is trading for 1.46 times book value, and has $1.64 in cash per share. EPS is up 89% quarter over quarter.
Technically, the stock seems to have found a bottom at this level. The stock has been trading sideways since late July. Nevertheless, the trend is positive and the stock popped above the 200-day sma. The coveted golden cross has been achieved.
Zynga had its first real-money gambling titles go live in the U.K. two months ahead of schedule recently. Zynga is accepting payments in U.S. dollars, Canadian dollars, euros, yen and of course pounds. This could set the stage for future international expansion. These recent developments regarding online poker bodes well for the stock. I posit the risk/reward ratio favors the longs at the point. In my last missive regarding the stock I stated to wait for a pullback to get in. This is that opportunity. The stock is trading just above the 200-day sma. I like the stock here.
The Bottom Line
The risk/reward ratio for these stocks looks favorable for long trades at the time. We are talking about long-term yet speculative investments. I suggest you take your time and layer into new positions. With the markets at all-time highs, there may be more buying opportunities ahead for these stocks. Always remember to have a well-balanced diversified portfolio containing several asset classes. Never allocate more than 5% to speculation.
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.