Some stocks lose their value and spring back into action. Others keep declining into oblivion. Stocks with big price drops over the past month have been: Motorola Solutions (MSI), Talbots (TLB), China Shen Zhou Mining (SHZ), Eastman Kodak (EK), Monster Worldwide (MWW), Radient Pharmaceutical (RPC), Angiotech Pharmaceuticals (ANPI), and Mannkind (MNKD). This can occur from a massive dividend payout, bad earnings surprise, a stock split (just a chart anomaly and no immediate effect to portfolio value), or a sharply revised forecast. But what about stocks that have declined over time and appear to be bottoming out, ready for an upwards pop?
Here are 3 stocks to look at that are trading at very low prices when looking at a chart. Are they really cheap bargains?
China Natural Gas, Inc (CHNG) has incredibly low valuations. It would seem that a current PE of 6.67 and a forward PE of 4.34 would make this one of the ripest picks. EPS growth looks healthy for next year at 45%. As prices bounce around the support of $5, shouldn't this be an immediate buy? Our first clue that something isn’t right is the high short ratio of 11.34%. For 3 quarters in a row, the earnings have seen negative surprises. But this is not the worst part. Roth Capital Partners issued a new ‘sell’ rating on this stock and cut price targets by 10%. A quick look at the Zacks site shows they too have it listed as a strong 'sell.' You may want to read this article for other reasons CHNG is a poor buy right now, such as a director quitting and delays.
UQM Technologies (UQM) – This little company with a market cap of less than 100 million creates guts for electric cars. The problem is, does this little engine have the horsepower to make it against the competition? Analysts are not overly positive. Insiders are mildly selling as are institutions. However, in the last two quarters, they have stemmed much of the hemorrhaging of net income losses and are on the verge of being profitable. Analysts are not sure what to expect with a range of -0.14 all the way up to plus 0.15 for EPS forecasts next year. The stock is trading just under $3.00 and has made a nice support of $2.00. While an ultra-risky gamble, this is one to watch.
Winn-Dixie Stores (WINN) was rated among the worst stocks of 2010 by CNNMoney. The cited reasons were narrow profit margins that hurt potential profits during the price wars with competitors such as Wal-Mart and Costco. Trading at seemingly low prices compared to intrinsic value (book value) or the industry standard may make this seem like a ‘no-brainer’ buy pick. However, WINN needs to start getting decent returns so value does not continue to erode. With a -0.28 EPS expected to be reported on Feb.14th, this stock is not a ‘sure bet’, not by a long shot. That being said, one Seeking Alpha writer feels that we can expect earnings to only be half as bad as the analysts forecast, thus giving them a head start on recovery. With support around $6 per share and volume starting to decline (positive sign that downward pressure might be letting up for now), there is the possibility of a bottom here if the above writer is correct.
The bottom line is, these stocks are at seemingly bargain prices for a reason. With the large upside reward comes a huge risk of missed earnings and further fundamental depreciation. If you want a small slice of this risk, be my guest, just don’t complain if it remains a bottom feeder for a while longer yet.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.