The purpose of this screen is to identify strong companies with stocks that may have already, or very soon will be, bottoming. Trading stocks near the 52 week low carries higher risk, so this screen attempts to filter to the firms with solid financial foundations and therefore lowers risk. It might be loosely considered a value strategy.
Of course, depending on your view, these may also be short sale candidates given they are bouncing around their 52 week lows.
So specifically, this screen looks for stocks with an average daily volume over 1 million, strong short term asset positions (quick ratio greater than one), the firm is profitable, the recent price is within 10% of the 52 week low, the price is greater than $5 (a threshold for many major investors and institutions), positive recent insider transactions (net purchases by the management team) and the firm pays a dividend (it is committed to returning shareholder value). In addition, to filter out stocks which are being targeted by short sellers and therefore carrying a higher risk, these stocks have low open short interest of the available float (<5%).
This screen yielded 8 stocks this week. For this review, I will exclude the two basic material stocks from the list since these are being driven by global macro economics and are less likely to be a bargain by this screen's definition.
Perennial favorite Apple (NASDAQ:AAPL) tops the list. Despite the recent price decline in Apple, their balance sheet and ability to generate cash continues to be very strong. Their quick ratio stands at 1.75 while it pays a 2.9% dividend. Apple reports earnings on July 23rd so there is likely to be some buy the rumor sell the news action in the coming weeks. Given the price of the stock, this one may be better traded using options to define the risk.
IBM (NYSE:IBM) also makes the screen this week with a 1.1 quick ratio, a 1.9% dividend and earnings scheduled for July 17th. IBM has a 52 week trading range of $181.85 to $215.90, so in some respects to say it is within 10% of the 52 week low while true, yet the high is only within 18% above of the low. Still this is a solid company with some downward price moves recently and it may be ready for a bounce.
Allergan (NYSE:AGN) is a manufacturer of specialty pharmaceuticals and medical devices. AGN sports a low dividend yield of 0.2% while having a large 3.5 quick ratio. The 52 week trading range is a nice wide $81.28 to $116.45 which unlike IBM gives this room to run. AGN reports earnings on July 31st.
American Tower Corporation (NYSE:AMT) is a real estate investment trust that owns and operates a wireless and broadcast communications infrastructure. The 52 range is $68.65 to $85.26 and it yields a rather small 1.5%. This is small because it operates as a Real Estate Investment Trust so it is passing along 90%+ of the profits to shareholders which indicates the margins are very thin here. AMT has been growing long term debt steadily of the last few years and while it has a positive quick ratio at 1.2. AMT may have been caught in the massive recent REIT selloff and could present a real opportunity because it owns and operates real property and does not just trade paper based on interest rate arbitrage.
Exelon Corp (NYSE:EXC) is a utility services holding company that engages in energy generation and distribution. EXC pays a good 4.2% dividend and has a 52 week price range of $28.40 - $39.82. The quick ratio is 1.0. Looking at the balance sheet, there has been some major increases in long term debt over the past few years and in 2012 EXC issues preferred stock. While the issuance by itself does not necessarily mean anything, when combined with increases in the long term debt, it raises questions about the capital structure an management strategy. And questions like these can spill over into the safety of the 4.2% yield. So this one deserves more study before placing a trade.
TECO Energy (NYSE:TE) is an electric and gas utility holding company that generates and purchases, distributes and sells electric energy central Florida. The 5.3% yield is attractive along with a 1.1 quick ratio. The 52 week trading range is $16.12-$19.22 - which is narrow but for swing traders this offers a decent hunting ground.
Do your own research, this list is intended only as a starting point. You may decide to either go long or short - place a long term or swing trade. Given that these are playing near 52 week lows and that over the next few weeks Wall Street is likely to be edgy on earnings news, be careful and set stop losses. For tight money management set them close or if you prefer to manage using mental stops, at least set a wide catastrophic stop.
Disclosure: I am long AAPL. 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: I am not a registered investment advisor and do not provide specific investment advice. The information contained herein is only my opinion based on personal research and offered for informational purposes. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any equity, do your own research and reach your own conclusion. Investing includes risks, including loss of principal.