11 Undervalued Stocks With Declining Short Interest

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 |  Includes: AHL, ASMIY, AWH, ESI, GAME, LRCX, MU, NVLS-OLD, PRU, RBCAA, UNM
by: Kapitall

When deciding among potentially undervalued stocks, it helps to look at sentiment indicators to determine how others are interpreting the stock’s valuation.

With that in mind, we wanted to run a screen on undervalued stocks, with PEG<1 and P/FCF<10. Among that universe, we looked for those with significant drops in short interest month-over-month. This produced 11 stocks, which are listed below.

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Short sellers think the upside potential of these stocks outweigh the downside – do you think they’re undervalued? Use this list as a starting-off point for your own analysis into potentially undervalued stocks.

List sorted by decrease in share shorted. (Note: Data collected on Friday afternoon.)

1. Shanda Games Limited (NASDAQ:GAME): Multimedia and Graphics Software Industry. Market cap of $1.99B. PEG at 0.92. P/FCF at 7.85. Shares shorted have decreased 41.93% month-over-month (from 192.24K to 111.63K shares shorted). The stock is exhibiting strong upside momentum - currently trading 13.21% above its SMA20, 15.34% above its SMA50, and 18.03% above its SMA200. The stock has had a couple of great days, gaining 6.13% over the last week.



2. Aspen Insurance Holdings Ltd. (NYSE:AHL): Property and Casualty Insurance Industry. Market cap of $1.99B. PEG at 0.78. P/FCF at 3.71. Shares shorted have decreased 34.67% month-over-month (from 3.23M to 2.11M shares shorted). AHL has a relatively low correlation to the market (beta = 0.65), which may be appealing to risk-averse investors. The stock has gained 1.66% over the last year.



3. ASM International NV (ASMI): Semiconductor Equipment and Materials Industry. Market cap of $2.06B. PEG at 0.58. P/FCF at 9.22. Shares shorted have decreased 29.93% month-over-month (from 101.67K to 71.24K shares shorted). This is a risky stock that is significantly more volatile than the overall market (beta = 2.36). After a solid performance over the last year, ASMI has pulled back during recent sessions. The stock is 2.9% below its SMA20 and 3.03% below its SMA50, but remains 26.73% above its SMA200. The stock has had a good month, gaining 10.6%.



4. Lam Research Corporation (NASDAQ:LRCX): Semiconductor Equipment and Materials Industry. Market cap of $6.30B. PEG at 0.95. P/FCF at 9.91. Shares shorted have decreased 23.82% month-over-month (from 3.82M to 2.91M shares shorted). After a solid performance over the last year, LRCX has pulled back during recent sessions. The stock is 3.19% below its SMA20 and 3.48% below its SMA50, but remains 11.67% above its SMA200. The stock has gained 27.67% over the last year.

5. Unum Group (NYSE:UNM):
Accident and Health Insurance Industry. Market cap of $7.99B. PEG at 0.78. P/FCF at 7.38. Shares shorted have decreased 20.24% month-over-month (from 5.93M to 4.73M shares shorted). The stock has gained 3.12% over the last year.

6. ITT Educational Services Inc. (NYSE:ESI)
: Education and Training Services Industry. Market cap of $1.93B. PEG at 0.58. P/FCF at 3.67. Shares shorted have decreased 19.90% month-over-month (from 5.93M to 4.75M shares shorted). It's been a rough couple of days for the stock, losing 13.33% over the last week.

7. Prudential Financial, Inc. (NYSE:PRU):
Life Insurance Industry. Market cap of $29.44B. PEG at 0.94. P/FCF at 4.93. Shares shorted have decreased 18.60% month-over-month (from 5.43M to 4.42M shares shorted). This is a risky stock that is significantly more volatile than the overall market (beta = 2.4). The stock has lost 1.8% over the last year.

8. Allied World Assurance Company Holdings Ltd. (NYSE:AWH): Property and Casualty Insurance Industry. Market cap of $2.40B. PEG at 0.57. P/FCF at 5.8. Shares shorted have decreased 16.54% month-over-month (from 630.95K to 526.62K shares shorted). The stock has gained 41.48% over the last year.

9. Micron Technology Inc. (NASDAQ:MU): Semiconductor Industry. Market cap of $10.62B. PEG at 0.62. P/FCF at 5.72. Shares shorted have decreased 15.05% month-over-month (from 56.94M to 48.37M shares shorted). The stock has lost 2.47% over the last year.

10. Novellus Systems, Inc. (NASDAQ:NVLS-OLD): Semiconductor Equipment and Materials Industry. Market cap of $3.05B. PEG at 0.93. P/FCF at 9.65. Shares shorted have decreased 13.08% month-over-month (from 4.13M to 3.59M shares shorted). After a solid performance over the last year, NVLS has pulled back during recent sessions. The stock is 3.96% below its SMA20 and 8.64% below its SMA50, but remains 10.85% above its SMA200. The stock has gained 27.33% over the last year.

11. Republic Bancorp Inc. (NASDAQ:RBCAA): Regional Bank. Market cap of $406.86M. PEG at 0.63. P/FCF at 5.53. Shares shorted have decreased 12.04% month-over-month (from 544.14K to 478.60K shares shorted). It's been a rough couple of days for the stock, losing 6.99% over the last week.

*Short data sourced from Yahoo! Finance (Note: current month for short data is month ended Mar. 31, 2011), price multiples and all other data sourced from Finviz.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.