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One way to pick out potentially undervalued stocks is to find those that are trading at deep discounts to their mean analyst target price. Although target price is known to suffer from an upward bias, deep discounts to target may indicate potentially undervalued opportunities.

We used target price to search for potentially undervalued stocks among the universe of small cap stocks rallying above their 20-day, 50-day, and 200-day moving averages. On top of this, we searched for those also seeing significant net buying from institutional investors, or “the smart money.”

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 index over the last month. To access a complete analysis of this list's recent performance, click here.


Do you think these stocks will keep rallying? Use this list as a starting-off point for your own analysis.

List sorted by potential upside implied by target price.

  1. Datalink Corp. (NASDAQ:DTLK): Business Software & Services Industry. Market cap of $123.25M. Net institutional purchases over the current quarter at 5.0M shares, which is 34.08% of the company's 14.67M share float. Current price at $7.17 vs. target price at $9.88 (implies a potential upside of 37.73%). The stock is trading at 7.20% above its 20-Day SMA, 2.41% above its 50-Day SMA, and 23.45% above its 200-Day SMA. The stock has had a good month, gaining 13.99%.

  2. CPI Aerostructures Inc. (NYSEMKT:CVU): Aerospace/Defense Products & Services Industry. Market cap of $100.38M. Net institutional purchases over the current quarter at 535.8K shares, which is 9.69% of the company's 5.53M share float. Current price at $14.74 vs. target price at $18.67 (implies a potential upside of 26.64%). The stock is trading at 7.52% above its 20-Day SMA, 3.83% above its 50-Day SMA, and 7.69% above its 200-Day SMA. The stock has had a good month, gaining 12.09%.

  3. ADA-ES, Inc. (NASDAQ:ADES): Pollution & Treatment Controls Industry. Market cap of $126.19M. Net institutional purchases over the current quarter at 418.4K shares, which is 7.47% of the company's 5.60M share float. Current price at $16.56 vs. target price at $20.00 (implies a potential upside of 20.77%). The stock is trading at 9.89% above its 20-Day SMA, 34.12% above its 50-Day SMA, and 50.59% above its 200-Day SMA. The stock has had a couple of great days, gaining 5.95% over the last week.

*Institutional data sourced from Fidelity, price data sourced from Screener.co, 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.

Source: 3 Undervalued Small Caps Being Bought Up by the Smart Money