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The markets have been declining for about six of the last seven weeks. With this kind of broad drop in stock prices, it's not hard to find many undervalued and solid companies that still have great growth prospects. There are many stocks that have rebound potential now, however the ones below look best to me. I call these "coiled spring" stocks because these companies are down so hard that they may rebound sharply like a coiled spring. I believe these stocks are great buys right now, but the markets can be irrational and drive great stocks even lower. So it makes sense to scale into these positions so you can take advantage of any future dips. Sometimes, stocks will bottom out by having a capitulation day, whereby the price drops and volume surges. If any of these stocks see that type of event, I would buy more aggressively.

These shares have reasonable PE ratios and are oversold. In particular, I am looking at earnings 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 an RSI rating around 70 or more can be considered overbought. Here are the stocks for June, almost all of which have RSI levels in the 30's or below.

RadioShack Corp. (RSH) shares are trading at $12.66. RadioShack operates a chain of specialty retail stores focused on electronics, computers and other items. The RSI for RadioShack is about 25, so these shares are at very oversold levels. These shares have traded in a range between $12.51 to $23.38 in the past 52 weeks. The 50 day moving average is $15.51 and the 200 day moving average is $17.46. Earnings estimates for RadioShack are $1.67 per share in 2011 and $1.82 for 2012, so the PE ratio is about 7 on these shares. RadioShack pays a dividend of 25 cents per share which is equivalent to a 1.9% yield. The PE ratio and other valuation metrics indicate these shares are cheap. I think it makes sense to start buying now. I plan to buy some shares this week, and more later on any further weakness.

Perfect World Co., Ltd. (PWRD) is trading at $17.38. Perfect World is one of the leading online gaming companies in China. The RSI for Perfect World is about 25, so these shares are at very oversold levels. The 50 day moving average is $24.09 and the 200 day moving average is $24.37. Perfect World earnings estimates are about $2.63 per share in 2011. The balance sheet is extremely strong with almost $5 per share in cash. You can see the balance sheet data here. These shares have been volatile, dropping from over $24 in just a couple weeks to about $17. I am planning to buy a little now and more later on any dips. This stock is acting very weak and I want to be able to buy any future weakness rather than be disappointed by it. At the same time, it is ridiculously cheap now, and could rebound sharply soon. A recent article from someone who just visited China says that in spite of the big drop in some China-based stocks, the economy is still booming and this all could be setting the stage for another big future Chinese stock rally. You can read that article here.

Gafisa SA (GFA) shares are trading around $9.45 per share. Gafisa is a major homebuilder based in Brazil. The RSI for Gafisa is about 29, so these shares are at oversold levels. These shares have traded in a range between $9.36 to $18.24 over the past 52 weeks. GFA earnings estimates are about $1.27 per share in 2011 and $1.51 for 2012. The 50 day moving average is $11.30 and the 200 day moving average is $13.35. The fact that Gafisa shares are trading well below these moving averages indicates Gafisa shares are very weak and they could get weaker. I am willing to buy a little at these levels, but would like to see a capitulation bottom before buying a full position. A capitulation bottom would be a drop in the price combined with very heavy volume and we have not seen that yet. If we do, it could be the all clear signal to buy.

Adobe Systems, Inc., (ADBE) shares are trading at $30.47. Adobe is a leading provider of publishing, web design and other software solutions and is based in California. The RSI for Adobe is about 27, so these shares are at oversold levels. The 50 day moving average is $33.70 and the 200 day moving average is $31.64. Earnings estimates for Adobe are at $2.22 per share in 2011 and $2.53 for 2012. The PE ratio is about 12, which is below many other software companies. Adobe is trading at a very reasonable valuation and is a leader in some areas which show promise for future growth. A fund manager recently said Adobe is a possible takeover target and you can read about that here. I would only consider buying a small position in Adobe for now because tech stocks in general are acting very weak.

E-Commerce China DangDang (DANG) shares are trading around $12.16. DangDang is based in China and is often referred to as the Amazon.com (AMZN) of China. The RSI for DangDang is about 26, so these shares are at very oversold levels. These shares have fallen from a 52 week high of $36.40. The 50 day moving average is $20.13. Dang has earnings estimates of about 6 cents per share for 2011 and 17 cents for 2012. This puts the PE ratio at sky high levels. But in time, growing profits could make the PE ratio more reasonable. Buying these shares is a play on massive growth potential and not the PE ratio at this time.

This stock has plunged from a recent high around $20, on concerns that insiders would soon be selling shares and due to the general market correction. These concerns seem overblown, but shorts have taken advantage of fear and a weak market and nearly cut the value of this company in half, in just a couple weeks or so. I think this is a good time to buy a little (in stages) for the long term. DangDang has major growth potential and in the future it could continue to be a high PE ratio stock like Baidu (BIDU), Amazon (AMZN) and others. Early stage Internet growth companies can be extremely volatile and undervalued at times. I remember when MercadoLibre (MELI) was taken below $10 per share during the financial crisis market collapse, a couple of years ago. Shares of MELI have shot back up to nearly $100 per share recently. I also like the fact that insiders (the co-founder and CEO) at DangDang recently stated they would purchase up to $2 million worth of stock using personal funds. Clearly they believe the shares are undervalued at these levels. You can read about that here.

Disclaimer: 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.

Source: 5 'Coiled Spring' Stocks