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While there is immense uncertainty surrounding the stock market and the US economic outlook, buyers are showing increasing interest in those stocks they believe have the potential to outperform or are trading at a significant discount to their true value. This article will examine five stocks that investors have recently been buying like crazy, to determine whether the positive sentiment is based on strong company fundamentals and solid earnings growth or market rumor. These five were chosen because their average daily volume in the last week exceeded the average dailiy volume in the prior week. Here is my analysis:

Bank of America (NYSE:BAC)

Bank of America Corporation has a market cap of $66.18 billion and does not currently have a price to earnings ratio as it is operating at a net loss. Its 52-week trading range is $5.13 to $15.31, and at the time of writing its last trading price was $6.53. It reported second-quarter earnings 2011 of $19.04 billion, a substantial decrease from first quarter-earnings of $32.62 million. Second-quarter net income was -$8.83 billion, a substantial decrease from first-quarter net income of $2.05 billion. It has quarterly revenue growth of -52.60%, a return on equity of -6.73% and pays a dividend with a yield of 0.60%.

One of Bank of America's closest competitors is Wells Fargo and Company (NYSE:WFC). Well Fargo and Company last traded at $26.23 and has a market cap of $138.29 billion. It has a price to earnings ratio of 9.72, quarterly revenue growth of 2.20% and a return on equity of 11.74%. It currently pays a dividend with a yield of 1.90%. Based on these key performance indicators, it is significantly outperforming Bank of America.

Bank of America’s second-quarter 2011 balance sheet showed cash of $685.76 billion, an increase from first quarter cash of $662.37 billion. It has net tangible assets in the second quarter of $141.93 billion, a decrease from the first quarter of $147.45 billion. Bank of America’s quarterly revenue growth of -52.60% versus an industry average of 17.10%, and a return on equity of -6.73% versus an industry average of 6.70%, shows that it is under performing the majority of its peers.

A key reason for the stock price being pushed lower by the market (besides the poor economic outlook) is due its troubled mortgage division, which has racked up billions of dollars in legal bills, paid a large settlement to mortgage investors and is facing a nationwide investigation into its foreclosure practices. This indicates that any investment in Bank of America is risky and uncertain, so as result the market has priced this risk into the stock’s value.

However, Bank of America possesses a strong national franchise, is the largest bank in its industry by market cap, and is currently trading at a significant discount to its book value per share of $20.29. In addition, Warren Buffett has made a substantial investment in Bank of America of $5 billion, which injects liquidity into the company and provides it with breathing space to resolve many of the problems it is now facing. On this basis I believe at the current trading price it represents a good investment opportunity, and I rate Bank of America as a buy.

Alcatel-Lucent (NYSE:ALU)

Alcatel-Lucent has a market cap of $6.09 billion and a price to earnings ratio of 12.26. For a 52-week period its trading range has been $2.25 to $6.63. Its last trading price was $2.68. The company reported second-quarter earnings for 2011 as $3.90 billion, an increase from first-quarter earnings of $3.74 billion. Second-quarter net income was $42 million, a substantial increase from first-quarter net income of -$10 million. It has quarterly revenue growth of 2.40%, a return on equity of 12.50%. It doesn’t currently pay a dividend.

One of Alcatel-Lucent’s closest competitors is LM Ericsson Telephone Co (NASDAQ:ERIC). LM Ericsson last traded at $10.07 and has a market cap of $32.24 billion. It has quarterly revenue growth of 14.20%, a return on equity of 10.75% and pays a dividend with yield of 2.70%. Both companies are performing strongly, but LM Ericsson pays a dividend.

Alcatel-Lucent’s cash position has improved; its second-quarter 2011 balance sheet showed $4.03 billion in cash, a decrease from $4.46 billion in the first quarter. Its quarterly revenue growth of 2.40% is less than the industry average of 12.80%, and its return on equity of 12.50%, is greater than an industry average of 10.00%. Based on these performance indicators, Alcatel-Lucent is performing on par with its peers, although it doesn’t have the same growth prospects of some.

Based on Alcatel-Lucent’s low quarter revenue growth rate and decreased balance sheet cash, I do not believe that it represents a good buy, with other communication equipment companies such as LM Ericsson representing far better value. I rate Alcatel-Lucent as a hold.

Complete Production Services (NYSE:CPX)

Complete Production Services has a market cap of $2.51 billion with a price to earnings ratio of 15.16. For a 52-week period its trading range has been $16.46 to $42.62. Its last trading price was $31.68. The company reported second-quarter 2011 earnings of $551.97 million, an increase from first-quarter earnings of $495.22 million. Second-quarter net income was $54.51 million, an increase from first-quarter net income of $38.93 million. It is achieving quarterly revenue growth of 53.20% and a return on equity of 20.08%. Complete Production Services doesn’t currently pay a dividend.

One of Complete Production Services’ closest competitors is Weatherford International Ltd (NYSE:WFT). Weatherford last traded at $15.11, has a market cap of $11.31 billion and a price to earnings ratio of 65.41. It has quarterly revenue growth of 25.20%, a return on equity of 1.96% and doesn’t currently pay a dividend. Based on these performance indicators, it is underperforming Complete Production Services.

Complete Production Services’ cash position has improved: Its second-quarter 2011 balance sheet showed $170.55 million in cash, an increase from $144 million in the first quarter. It has quarterly earnings growth of 53.20% versus an industry average of 23.30%, and a return on equity of 20.08%, versus an industry average of 9.70%. Based on these performance indicators, Complete Production Services is outperforming many of its industry peers.

The boom in demand for resources driven by the growth of the Chinese economy indicates further opportunities for strong revenue growth. When combined with a weak dollar, that should make U.S. exports more competitive, it bodes well for oil and natural gas demand. This should flow through to increased demand for maintenance, product and support services providers such as Complete Production Services.

Based on Complete Production Services' strong key performance indicators combined with the positive industry outlook, I rate it as a buy.

Citigroup (NYSE:C)

Citigroup Inc has a market cap of $87.65 billion and a price to earnings ratio of 800. Its 52-week trading range is $21.40 to $51.50. Its last trading price was $30.00. It reported second-quarter earnings 2011 of $17.24 billion, an increase from first-quarter earnings of $16.54 billion. Second-quarter net income was $3.34 billion, an increase from first-quarter net income of $2.99 billion. Citigroup has quarterly revenue growth of 18.00%, a return on equity of 6.66%, and pays a dividend with a yield of 0.10%.

One of Citigroup's closest competitors is HSBC Holding Plc (HBC). HSBC last traded at $41.00 and has a market cap of $144.57 billion. It has a price to earnings ratio of 9.75, quarterly revenue growth of 8.40% and a return on equity of 10.75%. It currently pays a dividend with a yield of 4.40%. Based on these key performance indicators, HSBC is performing on par with Citigroup, though its dividend yield is substantially higher.

Citigroup’s second-quarter 2011 balance sheet showed cash of $467.92 billion, an increase from first-quarter cash of $452.57 million. In the second quarter 2011, it had net tangible assets of $138.35 billion, an increase from first quarter’s $137.42 billion.

Citigroup’s quarterly revenue growth of 12.2 %, versus an industry average of 17.10%, and a return on equity of 6.15%, versus an industry average of 6.7%, indicates that it is underperforming many of its peers.

The earnings potential of companies generating revenue from the banking sector remains poor in the short term, due to tight credit markets and the poor economic climate. Citigroup had a high exposure to subprime loans and was forced to write down billions in bad debts, which has had a substantial impact on both its balance sheet and revenues. Recently there has been a drop in provisions for bad debts that has lead to an improvement in results.

On the basis of Citigroup's improving performance indicators, increasing net income and balance sheet cash, it is clear that Citi has put the worst behind it. When this is considered in conjunction with that fact it is currently trading at a price well below its book value of $60.33, I rate Citigroup as a buy.

Morgan Stanley (NYSE:MS)

Morgan Stanley has a market cap of $32.72 billion with a price to earnings ratio of 63.96. For a 52-week period its trading range has been $16.89 to $17.20. Its last trading price was $16.97. The company reported second-quarter earnings 2011 as $9.28 billion, an increase from first-quarter earnings of $7.64 billion. Second-quarter net income was $1.19 billion, an increase from first-quarter net income of $968 million. The company is achieving quarterly revenue growth of 16.20%, a return on equity of 6.99%, and pays a dividend with a yield of 1.20%.

One of Morgan Stanley’s closest competitors is Goldman Sachs Group, Inc (NYSE:GS). Goldman Sachs last traded at $101.97. It has a market cap of $51.58 billion with a price to earnings ratio of 10.00. It has quarterly revenue growth of -17.60%, a return on equity of 10.93%, and pays a dividend with a yield of 1.40%. Based on these performance indicators, Goldman is being outperformed by Morgan Stanley.

Morgan Stanley’s cash position has improved, its second-quarter 2011 balance sheet showed $231.74 billion in cash, an increase from $215.53 billion in the first quarter. Morgan Stanley’s quarterly earnings growth of 16.20% versus the industry average of 15.30%, and a return on equity of 6.99% versus an industry average of 6.00%, indicates that the company is outperforming many of its peers.

The earnings outlook for companies operating in the investment management and financial advisory industry remains poor in the short term, due to the worsening economic climate, poor investment returns and high unemployment rate. Despite the gloomy economic outlook, JP Morgan has strong performance indicators, increasing net income and balance sheet cash. On this basis, I rate the company as a buy.

Source: 4 High-Volume Stocks To Buy, 1 To Avoid