5 Stocks With Solid EPS Growth Poised To Move Higher

Includes: GRPN, MU, NOK, VIAV, XRX
by: David Alton Clark

The Gist

These five stocks have catalyst for upside and solid EPS growth forecasts. These facts are subjective and taken alone carry little weight, but it's a good starting point when looking for buying opportunities.

Furthermore, the companies have had some very positive developments occur recently. Now, simply selecting stocks with solid EPS growth and catalysts for upside is only the first step to finding winners for your portfolio. We still need to perform further due diligence to determine if these dogs can hunt. Furthermore, we will review the technical state for each company to determine if this is an ideal time to start a position. Nevertheless, you must always do your own work. Never rely on someone else to perform your due diligence.

The Goods

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 buy. Additionally, we will discern if any upside potential exists based on sector, industry or company specific catalyst. The following table depicts summary statistics and Thursday's performance for the stocks.

Alcatel-Lucent, S.A. (ALU)

The company is trading 16% below its 52-week high and has 19% upside potential based on the analysts' mean target price of $1.79 for the company. ALU was trading Thursday for $1.50, up over 31% for the day.

Fundamental Reasons To Buy

The company's EPS is expected to grow by 93.70% next year. ALU has a price to book ratio of 1.17. The company has $3.52 in cash per share. The balance sheet and cash flow statement are much improved.

Technical Review

Technically, ALU just bounced off the bottom of the long-term uptrend channel. The stock recently achieved the golden cross, which is bullish. As stated in my last missive, the stock was poised for a breakout to the upside. The stock did break out to the upside and is now trading approximately 10% higher.

My Take

The reason for the surge in ALU shares was a very positive shareholder meeting. Shareholders approved all ballot measures, including the appointment of Michel Combes as CEO. Furthermore, American Express executive Kim Crawford Goodman was appointed to the board.

Telecom industry growth in the U.S. and China should mean improvement in revenue and the bottom line for ALU. I think ALU is about to break out to the upside. Furthermore, a rally in European equities based on support from the ECB should underpin the stock. The stock is a buy at this level.

Groupon, Inc. (GRPN)

The company is trading 58% below its 52-week high and above the consensus mean target price of $5.59 for the company. Groupon was trading Thursday at $6.21, up over 11% for the day.

Fundamental Reasons To Buy

EPS is up 90% this year and expected to rise by 50% next year. EPS is expected to rise by 25% over the next five years as well. Sales are up 30% quarter over quarter.

Technical Review

Technically, the stock has leveled off and began trending upward. The 50-day sma has turned up and the golden cross has been fulfilled. The stock recently pulled back to the bottom of the uptrend channel then popped 11% on an earnings beat.

My Take

GRPN reported first quarter EPS of -$0.03 per share, in-line with expectations. You can read the transcript here. Revenue of $601.4 million was up 8% year over year, beating estimates by $12.5 million. The company reaffirmed 2013 GAAP operating income guidance of $100 million plus.

Groupon is investing heavily in creating a broad assortment of local commerce tools and services for merchants. This should help support and diversify revenue.

The earnings report confirms that the company is on track. In my last piece regarding the stock I suggested waiting until after earnings to start a position. I would apply the three day rule after such a significant pop and wait for a few days prior to jumping in.

JDS Uniphase Corporation (JDSU)

The company is trading 15% below its 52 week high and has 18% upside potential based on the analysts' consensus mean target price of $15.68 for the company. JDSU was trading Thursday for $13.28, down almost 2% for the day.

Fundamental Reasons To Buy

EPS next year is expected to rise by 37.50%. Revenue is up and profit margins are improving. The company's balance sheet and cash flow statements are in decent shape.

Technical Review

The stock fulfilled the golden cross at the beginning of the year, yet is flat year to date. I see this as a buying opportunity.

My Take

According to Barron's, there is a generally cautious tone to global service provider order patterns. Even so, MKM Partners states,

"seasonality is improving and JDS Uniphase seems to have good visibility to long-term evolution-related CommTest sales to AT&T (NYSE:T) and 4G CommTest and 100G Optical projects in China through the remainder of calendar 2013."

I agree with MKM. JDSU is trading flat for the year. I posit the stock has been dragged down with the rest of the telecom sector unjustly. This is a buying opportunity in the stock.

Micron Technology Inc. (MU)

The company is trading on par with its 52-week high and has 9% potential upside based on the consensus mean target price of $11.64 for the company. Micron was trading Thursday for $10.73, up nearly 5% for the day.

Fundamental Reasons To Buy

Micron is expecting EPS to be up 247% next year. Micron's forward P/E ratio is 16.48. Micron has a price to book ratio of 1.52 and a price to sales ratio of 1.37. Sales and EPS are improving quarter over quarter.

Technical Review

Technically, Micron is in an uptrend. The stock reversed trends at the beginning of November. The stock broke through major resistance at the 50-day and 200-day SMAs. The gap up after earnings was recently filled. The stock just broke above the current trading range for the second time this year.

My Take

Micron stated on its earnings call it sees "a favorable supply and demand balance" for NAND due to strong SSD and mobile device demand combined with slowing manufacturing process shifts. You can read the transcript here.

According to a recent report by IDC, smartphone shipments were up by 41.6% and tablet shipments grew by 142.4% in the first quarter of 2013. This is a secular trend I expect to continue. I believe the risk/reward still favors longs. The stock is a buy here, but be sure to layer in to the position.

Xerox Corp. (XRX)

The company is trading 45 below its 52-week high and on par with the consensus mean target price of $9.00 for the company. Xerox was trading Thursday for $9.03, up nearly 3% for the day.

Fundamental Reasons To Buy

The company has a forward P/E of 7.69. The company is trading for a price to book ratio of .93. XRX has a PEG ratio of 1.47. Xerox is trading for 6.26 times free cash flow. The company pays a dividend with a yield of 2.56%.

Technical Review

The stock has been on a roll since the company's annual conference on November 13th. The stock has posted higher highs and higher lows since that date. The golden cross has occurred. The stock consolidated just above long-term support at the $8 mark and has begun to move higher.

My Take

Xerox predicted its services business will expand to two-thirds of revenue by 2017 from about half this year. This should lead to significantly higher margins. I do not believe this has been priced into the stock. The risk reward is favorable for long trades at this level.

The Bottom Line

I believe these stocks are buys that have major upside potential. I see these stocks continuing to move higher. With the market trading at all-time highs, I posit it is important to look for stocks with strong fundamentals and catalysts for upside. One caveat, I would wait for GRPN to cool off some prior to starting a position.

Always remember to maintain a well-balanced diversified portfolio containing several asset classes. Use this information as a starting point for your own due diligence and research methods before determining whether or not to buy or sell a security. If you choose to start a position in any stock, I suggest layering in on a weekly basis at a minimum to reduce risk. Set a stop loss order to minimize losses even further if you wish.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in XRX, MU, GRPN, ALU, JDSU over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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.