When deciding among potentially undervalued stocks, it helps to look at sentiment indicators to determine how others are interpreting the stock’s valuation.
Here we started our search by creating a universe of stocks that appear undervalued relative to free cash flow (P/FCF below 10) and relative to earnings growth (PEG < 1). Among these stocks, we then searched for those with significant levels of insider buying over the last 6 months.
Our final screen produced 4 names, detailed below.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.
We also created a price-weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 (SPY) index over the last month.
Do you think these stocks are soon to bounce back? Use this list as a starting-off point for your own analysis.
1. American International Group, Inc. (AIG): Property & Casualty Insurance Industry. Market cap of $54.65B. PEG at 0.29. P/Free Cash Flow at 6.04. Net insider purchases over the last six months at 3.06% of the company's 228.47M share float. The stock has lost 20.76% over the last year.
2. Entercom Communications Corp. (ETM): Broadcasting Industry. Market cap of $308.35M. PEG at 0.87. P/Free Cash Flow at 3.83. Net insider purchases over the last six months at 0.19% of the company's 19.10M share float. This is a risky stock that is significantly more volatile than the overall market (beta = 2.68). The stock is a short squeeze candidate, with a short float at 12.4% (equivalent to 15.47 days of average volume). The stock has performed poorly over the last month, losing 13.47%.
3. Lincoln Educational Services Corporation (LINC): Education & Training Services Industry. Market cap of $361.96M. PEG at 0.49. P/Free Cash Flow at 5.71. Net insider purchases over the last six months at 1.38% of the company's 21.19M share float. The stock is a short squeeze candidate, with a short float at 5.43% (equivalent to 5.32 days of average volume). The stock has had a good month, gaining 11.4%.
4. Mercer International Inc. (MERC): Paper & Paper Products Industry. Market cap of $502.10M. PEG at 0.72. P/Free Cash Flow at 2.86. Net insider purchases over the last six months at 0.28% of the company's 34.60M share float. This is a risky stock that is significantly more volatile than the overall market (beta = 3.32). After a solid performance over the last year, MERC has pulled back during recent sessions. The stock is -4.8% below its SMA20 and -9.12% below its SMA50, but remains 17.06% above its SMA200. The stock has performed poorly over the last month, losing 13.78%.
*Insider data from Yahoo! Finance. 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.
