There are many indicators I use when analyzing a stock. One indicator I look for are relatively cheap dividend stocks. Another strong indicator is insider buying, such as the ones described here. Finally, another indicator is looking at unusual option activity, as I recently brought up here, while some on Oct. 12 caught my eye:
The iShares MSCI Malyasia Index (NYSEARCA:EWM) seeks to replicate, net of expenses, the MSCI Malaysia index. There was a very high 20,000 Nov 14 call contracts traded, indicating bullishness. This is simply a basket of Malaysian companies, and looks to have some value trading as of Sept. 30 at a 14x P/E and just over 3% dividend yield. Moreover, the index looks to have bottomed recently at $12 and so this can look to be a buy on a technical bounce as well.
Darling International (NYSE:DAR), together with its subsidiaries, provides rendering, recycling, and recovery solutions to the food industry. The stock had unusual option activity specifically in Jan $10 and $12.5 puts where investors are looking for the company to trade in that tight range. The stock looks attractive at 10.6x P/E, 1.2x P/S, 6.3x EV/EBITDA, and strong return on assets of over 15% and return on equity nearing 21%.
Liz Claiborne (LIZ) engages in the design and marketing of a range of apparel and accessories. The stock exploded 34% higher as they sold some assets and had strong call option activity throughout the months. The stock has some value trading at .25x P/S and .5x EV/S, and a big expected $328M cash infusion from these sales. However, the company lost over $250M in net income last year and some depressing margins indicating a lack of pricing power. The company expects to use virtually all the cash to pay its sizable $750M debt load which is encouraging and end the year at a much more reasonable $270-290M level. I like the actions by management and feel it’s a solid move for them to focus on their more profitable Lucky, Kate Spade, and Juicy brands. This is a nice speculative buy.
Superior Energy Services (SPN) provides specialized oilfield services and equipments to serve the production and drilling-related needs of oil and gas companies. Option volume exploded higher with the Oct 20 and 25 calls specifically. Investors didn't like the proposed acquisition of Complete Production earlier in the week on Oct. 10 and pushed the stock almost 14% lower that the day. The stock has since recovered some ground and doesn't look overly expensive or cheap at 19.2x P/E, 1.4x P/B and 1.5x EV/S now. However, I'd be cautious with the stock going forward as this is a big acquisition for the company and can prove to be costly when trying to merge companies.
Integrated Device Technology (NASDAQ:IDTI) designs, develops, manufactures, and markets a range of integrated circuits for communications, computing, and consumer industries worldwide. Call option activity really surged with the Feb 5 and 7 strike prices specifically. The stock looks relatively cheap at just over 12x P/E, .85x EV/S, and no debt with almost $2/share in net cash. With the company generating just over $60M in FCF this past year and its pristine balance sheet, I think IDTI makes for a solid buy at these depressed levels.
Hercules Offshore (NASDAQ:HERO), together with its subsidiaries, provides shallow-water drilling and marine services to the oil and natural gas exploration and production industry in the U.S. Gulf of Mexico and internationally. The stock had massive options activity specifically at the Oct call and put 3 strike price. The stock has some solid valuations at .5x P/Tangible BV, .6x P/S, and 6.7x EV/EBITDA. However, it does have a big debt load of approximately $850M and negative net cash position of approximately $750M, negative return on equity greater than 13%, and lost over $125M in net income this prior year. Some recent insider purchases at this price level is encouraging though, and with the stock showing such compelling value, I think this is a safe speculative energy play.
Approach Resources (NASDAQ:AREX), an independent energy company, engages in the acquisition, exploration, development, and production of oil and gas properties in the United States. Options activity was very high specifically in the Jan 22.5 and 30 calls. This is another speculative energy play much like HERO mentioned above, but I don’t see the same value as this trades at 1.7x P/Tangible BV, 8.6x EV/S, and 14.3x EV/EBITDA. I’d rather own HERO.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.