These seven large cap or better stocks have great stories, positive catalysts for future growth, are extremely oversold based on the current RSI indicator and have substantial quarterly EPS growth rates of greater than 40 percent. The earnings per share of a company is conceivably the most important statistic to understand before investing in a company’s stock. Each time you consider starting a position in a stock, you should prudently scrutinize its earnings information. The reason earnings are so vital to investors is because they tell you about the relative profitability of a company. Earnings per share is defined as the net income of a company divided by the shares of common stock outstanding. With the EPS measure, you are looking at the amount of money left over for shareholders. The value is reported after taxes are subtracted, and we are "normalizing" those profits by stating them on a per share basis. When a company is profitable, and has money to give back to shareholders in the form of earnings, the company has two basic options. It can distribute some of the earnings in the form of a stock dividend. Whatever is not paid out in the form of dividends is placed into the retained earnings, which then become a source of money, or capital, which can be used to help support the growth of a company.
The RSI Indicator is a good tool to help identify overbought/ oversold conditions, divergences, and crossovers that investors use to identify new trends in a stock. Known as the Relative Strength Index, the RSI was developed by J. Welles Wilder in 1978 to measure the relative strength of price currently compared wit its price history over a set number of periods. The RSI indicator is plotted on a panel above or below the price chart. It is easy to identify the set-up as the RSI indicator shows the market’s strength compared with the historical price trend. Most traders and investors use the RSI Indicator. As a measure of overbought and oversold conditions, the RSI indicator provides investors a way to identify a security or index that is reversing direction. When RSI is above 70, it is signaling an overbought condition, indicating an investor needs to be ready to close long positions or establish downside protection. As the RSI turns down through 70, it is giving a sell signal. An RSI below 30 indicates an oversold condition, acting as a warning to the investor to be ready to buy the best set ups. As the RSI indicator rises through 30, it gives a buy signal. This is especially true if the long-term trend is up, as the RSI rises through 30, creating potential entry points. These are bullish indicators regarding a stock's possible future performance. Moreover, most of these stocks are trading well below consensus analysts’ estimates. Several have recent upgrades and positive analyst comments.
There may be more volatility in front of us even with the more than 10% drop in the market recently. Nevertheless this may be a good point to start a position in these buying opportunities. As Warren Buffett says, “Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.” Seven large cap or better stocks in the DOW and S&P 500 (NYSEARCA:SPY) that are oversold based on the current RSI indicator and have substantial quarterly EPS growth rates of greater than 40 percent are Halliburton Company (NYSE:HAL), Honeywell International Inc. (NYSE:HON), The Dow Chemical Company (NYSE:DOW), Baker Hughes Incorporated (NYSE:BHI), PACCAR Inc. (NASDAQ:PCAR), Alcoa, Inc. (NYSE:AA) and Netflix, Inc. (NASDAQ:NFLX).
Below is a table with detailed statistics regarding each company’s current Earning per Share and Dividend information followed by a brief review of each company, detailed current analysts' estimates and up/downgrade activity followed by a chart of the company's key statistics. Please use this as a starting point for your own due diligence.
(Click images to enlarge)
Halliburton Company provides various products and services to the energy industry for the exploration, development, and production of oil and natural gas worldwide. The company is trading significantly below analysts' estimates. Halliburton has a median price target of $70 by 31 brokers and a high target of $93. The last up/downgrade activity was on May 16, 2011, when Global Hunter Securities initiated coverage on the company with an Accumulate rating.
Honeywell International Inc. operates as a diversified technology and manufacturing company worldwide. The company is trading below analysts' estimates. Honeywell has a median price target of $66 by 19 brokers and a high target of $74. The last up/downgrade activity was on Feb 23, 2011, when Argus upgraded the company from Hold to Buy.
The Dow Chemical Company manufactures and supplies products used as raw materials in the production of customer products and services worldwide. The company is trading below analysts' estimates. Dow Chemical has a median price target of $43 by 10 brokers and a high target of $49. The last up/downgrade activity was on May 5, 2011, when Argus upgraded the company from Hold to Buy.
Baker Hughes Incorporated supplies wellbore related products, and technology services and systems for drilling, formation evaluation, completion and production, and reservoir technology and consulting to the oil and natural gas industry worldwide. The company is trading significantly below analysts' estimates. Baker Hughes has a median price target of $98 by 27 brokers and a high target of $140. The last up/downgrade activity was on Jul 26, 2011, when Howard Weil upgraded the company from Market Perform to Market Outperform.
Click to enlarge
PACCAR Inc, together with its subsidiaries, designs, manufactures, and distributes light-, medium-, and heavy-duty trucks and related aftermarket parts primarily in the United States and Europe. The company is trading significantly below analysts' estimates. PACCAR has a median price target of $55 by 17 brokers and a high target of $62. The last up/downgrade activity was on Jul 29, 2011, when McAdams Wright Ragen upgraded the company from Hold to Buy.
Click to enlarge
Alcoa, Inc. engages in the production and management of aluminum, fabricated aluminum, and alumina. The company operates in four segments: Alumina, Primary Metals, Flat-Rolled Products, and Engineered Products and Solutions. The company is trading below analysts' estimates. Alcoa has a median price target of $20 by 11 brokers and a high target of $28.10. The last up/downgrade activity was on Apr 12, 2011, when BMO Capital Markets downgraded the company from Market Perform to Underperform.
Netflix, Inc. provides online movie rental subscription services in the United States and Canada. The company is trading significantly below analysts' estimates. Netflix has a median price target of $282.50 by 22 brokers and a high target of $30. The last up/downgrade activity was on April 26, 2011, when Maxim Group upgraded the company from Sell to Hold.
Click to enlarge
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.