This week brought mixed results from global markets, with the IMF reducing China's growth forcast, while many EU member states enjoyed relaxed austerity measures. This is all very important information for investors, but when looking to diversify a portfolio across regions investors should look beyond headlines for worthwhile plays.
To generate the list below, we ran a screen across foreign stocks for bullish sentiment from institutional investors, with significant net institutional purchases over the last quarter representing at least 5% of share float. This indicates that institutional investors such as hedge fund managers and mutual fund managers, who often have more sophisticated market data on hand, expect these companies to outperform into the future.
This left us with a list of over 30 companies, so to narrow it down we looked for evidence of undervaluation that might explain why these stocks are attracting buyers.
We decided to screen for technically oversold stocks, with Relative Strength Index (RSI) below 40. The RSI for each stock is an indicator of overbought or oversold conditions, comparing recent gains to recent losses.
RSI = 100 - 100 / (1 + RS*) *Where RS = Average of X days' up closes / Average of X days' down closes
RSI ranges from 0 to 100, and when that number approaches 30, the stock in question may be more oversold and therefore potentially undervalued.
We were left with three companies on our list. Because RSI is just one technical factor, we also looked at each stock's recent performance, and investors should note that all three are not only underperforming based on quarterly performance, but also trading below their 20, 50, and 200-day moving averages (MA).
For an interactive version of this chart, click on the image below. Average analyst ratings sourced from Zacks Investment Research.
Do you agree with hedge funds that these stocks are undervalued and worth the risk? Use the list below as a starting point for your own analysis.
1. IMRIS, Inc. (IMRS): (Canada) Provides integrated image guided therapy solutions that deliver information to clinicians during surgical or interventional procedures.
- Market cap at $133.8M, most recent closing price at $2.58
- RSI: 34.92
- Performance (quarter): -37.98%
- 20 day MA: -9.14%
- 50 day MA: -15.55%
- 200 day MA: -32.60%
- Net institutional purchases in the current quarter at 4.5M shares, which represents about 20.61% of the company's float of 21.83M shares. The top holders of the stock are JP Morgan Chase & Co. (10.06%) and GCIC Ltd. (6.91%).
More information to consider: IMRS has returned -19.12% since 4/29/13, and is one of the worst performing stocks in its industry. The stock is falling behind companies like (ICAD) and (NVDQ), which returned 24.07% and 4.07%, respectively, and industry giant Siemens AG (SI), which returned 2.98% during the same time period.
The company's average daily alpha vs. the S&P500 index stands at -0.85% (measured close to close, over the last month). During this period, the longest losing streak lasted 4 days (i.e. the stock's daily returns underperformed the S&P 500 for 4 consecutive days). The longest winning streak lasted 1 day (i.e. a win streak / losing streak ratio of 0.25).
Upside potential: The company has reported solid earnings growth over the last year, with EPS growing by 26.20%, but this was lower than competitors like ICAD (EPS growth over the last year at 74.80%) and NVDQ (EPS growth over the last year at 88.20%).
2. Adecoagro S.A. (AGRO): (Luxembourg) Operates as an agricultural company in South America.
- Market cap at $914.1M, most recent closing price at $7.47
- RSI: 36.85
- Performance (quarter): -6.63%
- 20 day MA: -4.26%
- 50 day MA: -2.62%
- 200 day MA: -15.55%
- Net institutional purchases in the current quarter at 5.2M shares, which represents about 8.89% of the company's float of 58.46M shares. The top holders of the stock are Soros Fund Management LLC (21.50%) and Ospraie Management LLC (9.09%).
More information to consider: AGRO has performed in line with the rest of its industry since 4/29/13, returning -0.80% over the last month. This performance has been better than Archer Daniels Midland Company (ADM) and The Andersons, Inc. (ANDE), but worse than industry leaders like Bunge Limited (BG) and Fresh Del Monte Produce Inc. (FDP), which returned -0.35% and -0.40% respectively.
The company's earnings growth looks weak, with EPS growing by -83.86% over the last year. This is considerably worse than competitors like Bunge Limited (EPS growth over the last year at 79.15%) and Fresh Del Monte Produce Inc. (EPS growth over the last year at 57.59%).
AGRO has a lower than average projected earnings growth rate over the next 5 years (1.10%). This is significantly below the analyst projections for The Andersons, Inc. (projected EPS growth over next 5 years at 12.0%) and Bunge Limited (projected EPS growth over next 5 years at 11.0%).
Despite AGRO's Luxembourg roots, its land is 66.6% in Brazil, 32.2% in Argentina and 1.2% in Uruguay and subject to much of the political and economic uncertainty in the region, which is arguably riskier than its home base.
Despite all this negativity, analysts at Zacks upgraded AGRO from an underperform to a neutral rating. Zacks currently has $7.70 price target on the stock (only 3.07% upside from current levels). Furthermore, investors noticed that George Soros kept his long position in AGRO steady in his Q1 2013 filings, a very bullish signal for those who like to follow the institutional investor elite.
3. Radware Ltd. (RDWR): (Israel) Provides application delivery solutions and network security solutions to banks, insurance companies, manufacturing and retail, government agencies, media companies, and service providers worldwide.
- Market cap at $667.52M, most recent closing price at $14.88
- RSI: 38.85
- Performance (quarter): -18.15%
- 20 day MA: -1.71%
- 50 day MA: -5.25%
- 200 day MA: -10.74%
- Net institutional purchases in the current quarter at 4.6M shares, which represents about 14.83% of the company's float of 31.01M shares. The top holders of the stock are Cadian Capital Management LLC (17.38%) and FMR LLC (16.88%).
RDWR has performed poorly since 4/29/13, especially when compared to industry competitors. The stock returned 0.81% over the last month, much lower than F5 Networks, Inc. (FFIV) and Wipro Ltd. (WIT), which returned 9.65% and 2.33%, respectively, during the same time period. Only Computer Sciences Corporation (CSC) performed worse, returning -6.08%.
The massive share price drop can largely be attributed to weak first quarter. But according to Michael Lippert of Baron Opportunity Fund, the long-term prospects are still there. He calls the recent drop a potential buying opportunity.
Supporting that opinion are some, but not all, conventional valuation ratios which are impressive compared with some industry peers. The stock's P/E ratio is 5.45 and its PEG ratio stands at 0.43, but its Price/Cash ratio stands at 7.57. This is in comparison with FFIV (P/E at 24.21, PEG at 1.61, P/C at 12.55), Cisco Systems, Inc. (CSCO) (P/E at 13.40, PEG at 1.61, P/C at 2.72) and Citrix Systems, Inc. (CTXS) (P/E at 35.30, PEG at 2.13, P/C at 18.27).
The company has a lower than average projected earnings growth rate over the next 5 years (12.68%). This is below the analyst projections for WIT (projected EPS growth over next 5 years at 13.00%) and FFIV (projected EPS growth over next 5 years at 15.06%), but still ahead of CSCO (projected EPS growth over next 5 years at 8.33%).
*Institutional data sourced from Fidelity, all other data sourced from Finviz.