I like to buy stocks that have solid long term fundamentals but for whatever reasons, have been hit hard by shorter term issues. Sometimes a disappointing earnings report, a market or sector correction or some other news will give investors like me a chance to buy cheap while others are panic selling. If you are willing to buy when things look uncertain, you can often get yourself a bargain. Below, are my top coiled spring stocks for May. These shares have reasonable PE ratios and are oversold. In particular, I am looking at earnings ratios, book value, and the Relative Strength Index (RSI) levels which can indicate oversold conditions. Stocks with an RSI rating around 30 or below can signal that the shares are oversold and due for a rebound. Stocks with a RSI rating around 70 or more can be considered overbought.
Some of these companies are down so hard that they may rebound sharply like a coiled spring. When buying stocks that have dropped substantially, it makes sense to buy in stages so you can take advantage of any further price drops. Some might be just good for a short term trade and others might be great to hold long term. I bought stock in many of these companies today, taking advantage of a weak market. Here are the companies, all of which have RSI levels in the 30's or below.
LDK Solar (LDK) is trading at about $10.42. LDK is a leading solar company and is based in China. These shares have a relative strength index of about 37, which indicates the shares are oversold. The 50 day moving average is $11.78 and the 200 day moving average is $10.64. LDK has very strong earnings and based on guidance from the company, they could easily earn over $3 per share in 2011. This puts the PE ratio at about 3 which is extremely low for one of the leading solar companies.
Why LDK shares could rebound: These shares are extremely undervalued and heavily shorted, so at some point they should be heading higher. One major catalyst for a new run to 52 week highs for LDK is likely to be the spin off of it's polysilicon division. LDK will probably list this business in the coming months on the Hong Kong Stock Exchange. This will allow the company to pay down debt and unlock hidden value in these shares. Another big plus is that the CEO of LDK said just days ago that he expects solar demand in China to surge higher in 2012.
RAIT Financial Trust (RAS) shares are trading at $2.17. RAIT is a real estate investment trust, based in Pennsylvania. These shares have a relative strength index of about 37, which indicates the shares are oversold. These shares have traded in a range between $1.30 to $4.75 in the last 52 weeks. The 50 day moving average is $2.63 and the 200 day moving average is $2.18.
Why RAIT Financial shares could rebound: According to the latest data on shortsqueeze.com, there are about 13.9 million shares short. Based on average volume of just over 2.2 million shares traded per day, it would take over 6 days worth of volume to match the number of shares short. A little good news could create a nice pop upward for these shares. These shares are trading right around major support levels of $2.18 which is the 200 day moving average, so it's probably safe to start loading up after the recent drop on earnings.
American Superconductor (AMSC) is trading at about $11.37. These shares have a relative strength index of about 19, which indicates the shares are very oversold. These shares have a 52 week range of $11. and $38.88. The 50 day moving average is $19.88 and the 200 day moving average is $28.06, so the shares are trading well below these key support levels. Earnings estimates for AMSC are about 67 cents per share in 2011. Book value is stated at $9.86 per share.
Why American Superconductor could rebound: According to the latest data on shortsqueeze.com, there are about 12.7 million shares short. Based on recent volume of just over 800,000 shares traded, it would take about 14 days worth of volume to match the number of shares short. The most recent list of stocks with the highest short interest has AMSC on the list, with about 32% of outstanding shares currently short. See that list here. This stock fell when a major customer refused shipments, however this company has quality products and technology which be in demand in the long run. Furthermore, this company could be a takeover target at these prices. A company like General Electric (GE) might be interested in AMSC.
Akamai Technologies, Inc. (AKAM) shares are trading at $34.96. These shares have a relative strength index of about 35 which indicates the shares are oversold. AKAM is a leading Internet service company that helps accelerate and deliver website content. They reported earnings which disappointed the market, and then the shares fell further with the markets. The 50 day moving average is $37.40 and the 200 day moving average is $45.28. Earnings estimates for AKAM are just over $1.60 per share in 2011 and $1.83 for 2012.
Crocodile Gold (OTCQX:CROCF) shares are trading at about 90 cents. These shares have a relative strength index of about 30 which indicates the shares are oversold. Crocodile Gold is based in Canada with mines in Australia. The 50 day moving average is 98 cents and the 200 day moving average is $1.24. Crocodile Gold just raise a significant amount of capital to fund more development which caused the stock to drop. With the capital raise behind them, they have the cash needed to fully develop their properties. This company has many exciting plans for the future. Read the investor presentation from Crocodile here.
Why Crocodile shares could rebound: Insiders recently bought hundreds of thousand of shares in this company at about $1 per share. You can see that . Crocodile Gold has an experienced management team with several top executives having been previously employed at Goldcorp (GG). When you see several executives leave a major, well established company like Goldcorp, they must be seeing serious upside in Crocodile. This company appears to be developing itself to be a prime acquisition target in the future. Crocodile is currently developing the Cosmo underground mine which has great potential and is expected to start production around mid 2011. The current sell off in these shares was due to a capital raise weeks ago and now the drop in precious metal stocks has hit Crocodile shares. These shares have to be at or close to the bottom and the price of gold remains over $1,500 per ounce which makes this stock a bargain. Here is a chance to buy shares for about 15% less than the insiders just paid.
Gafisa SA (GFA) shares are trading around $11.02 per share. These shares have a relative strength index of about 28 which indicates the shares are oversold. Gafisa is a major home builder based in Brazil. These shares have traded in a range between $10.04 to $18.24 over the past 52 weeks. The 50 day moving average is $12.48 and the 200 day moving average is $13.87. GFA earnings estimates are about $1.27 per share in 2011. The Brazilian government recently announced housing budget cuts which is putting pressure on home builder stocks like GFA.
Why Gafisa shares could rebound: Brazil has a booming economy and a growing middle class. The economy is growing so fast that the government is trying to slow it down and reduce inflation by raising interest rates. This caused home building stocks to drop. I think this stock is just temporary and Brazil is a solid place to invest in the future.
JA Solar Company, Ltd. (JASO) shares have also pulled back sharply, to about $6.14. The relative strength index is about 39. These shares have fallen, from a 52 week high of $10.24. The 50 day moving average is $6.73 and the 200 day moving average is $7.24. JASO has earnings estimates of about $1.26 per share for 2011. This puts the PE ratio at about 4.
Why JA Solar shares could rebound: Book value is listed at $6.22 per share, so the shares are trading below book value. This company is profitable and is deeply oversold. Shorts have been active in this stock and they will need to cover at some point.
The data is sourced from Yahoo Finance and Stockcharts.com. The information and data is believed to be accurate, but no guarantees or representations are made. Rougemont is not a registered investment advisor and does not provide specific investment advice. This information is solely educational in nature and not intended to serve as the basis for any investment decision.