5 Stocks Investors Are Buying Like Crazy

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 |  Includes: ACTV, ADBE, ALJ, ATI, CTXS, DK, DPZ, EGAN, PZZA, VHI
by: Vatalyst

Buyers are showing considerable interest in a wide range of stocks as they seek investment opportunities in increasingly volatile investment markets. This has seen stock in a number of niche producers and small caps substantially increase in value due to the high investor interest. When considering whether to invest in any hot stock, it is important to understand what is driving the stock price to increased buying interest. In this article I will review five stocks that have had the highest percentage gain in their price for the year, with a view to determining whether the fundamentals indicate they are worthwhile investments.

The Active Network Inc (NYSE:ACTV)

The Active Network Inc has a market cap of $717.54 million with no price to earnings ratio. For a 52 week period its trading range has been $12.60 to $19.99. It’s currently trading at around $13. It reported second quarter earnings 2011 of $99 million, an increase from first quarter earnings of $72.70 million. Second quarter net income was $5.53 million, an increase from first quarter net income of -$10.90 million. The company has quarterly revenue growth of 21.20%, no return on equity, and doesn’t pay a dividend.

One of the Active Network’s closest competitors is Adobe Systems Incorporated (NASDAQ:ADBE). Adobe Systems is trading at around $30 and has a market cap of $14.62 billion. It has a price to earnings ratio of 16.31, quarterly revenue growth of 2.30% and a return on equity of 17.43%. It doesn’t pay a dividend. Based on these performance indicators, the Active Network has better growth prospects than Adobe Systems

Active Network’s cash position has improved, its second quarter 2011 balance sheet showed $163 million in cash, an increase from $65.80 million in the first quarter. It has quarterly revenue growth of 21.20%, versus an industry average of 21.90%, and no return on equity versus an industry average of 24.90%, indicating that the company is underperforming many of its competitors.

The outlook for the Application Software industry is positive despite the current poor global economic outlook and negative consumer sentiment. It has been forecast by Forrester Research that the global software industry will continue to grow in 2012.

Based on the positive industry outlook combined with the company’s solid quarterly growth rate and increase in net income I can understand the high investor interest in investing in this company. Accordingly I rate Active Network as a buy.

Valhi Inc (NYSE:VHI)

Valhi Inc has a market cap of $6.79 billion and a price to earnings ratio of 56.13. For a 52 week period its trading range has been $19.02 to $63.99. It’s currently trading at around $60. The company reported second quarter earnings for 2011 as $582 million, an increase from first quarter earnings of $472 million. Second quarter net income was $52.40 million, an increase from first quarter net income of $38 million. It has quarterly revenue growth of 37.90%, a return on equity of 23.82%, and pays a dividend with a yield of 0.90%.

One of Valhi’s closest competitors is Allegheny Technologies Inc. (NYSE:ATI). Allegheny Technologies trades at around $50 and has a market cap of $5.28 billion. It has quarterly revenue growth of 27.70%, a return on equity of 8.30% and pays a dividend with a yield of 1.50%. Based on these performance indicators it is underperforming Valhi.

Valhi’s cash position has declined, its second quarter 2011 balance sheet showed $92.70 million in cash, a decrease from $150.00 million in the first quarter. Its quarterly revenue growth of 37.90% is greater than the industry average of 8.60%, while its return on equity of 23.82% is greater than an industry average of 17.50%. This indicates that it is outperforming many of its competitors.

The earnings outlook for the Synthetics industry is subdued, however after sharp declines in the last two years, it is expected that the industry will recover at a slow rate. The devaluation in the U.S. dollar also makes U.S. exports more attractive to international buyers and bodes well for U.S. based manufacturers such as Valhi.

Based on the increasingly positive outlook for the industry combined with its strong performance indicators and substantial increase in net income, I understand the recent investor interest in the company and rate it as a buy.

Delek US Holdings Inc (NYSE:DK)

Delek U.S. Holdings Inc has a market cap of $935.28 million and no price to earnings ratio. For a 52 week period its trading range has been $6.65 to $17.50. It’s currently trading at around $16. The company reported second quarter 2011 earnings of $1.85 billion, an increase from first quarter earnings of $1.14 billion. Second quarter net income was $54.90 million, a substantial increase from first quarter net income of $16.90 million. It has quarterly revenue growth of 85.30%, a return on equity of -1.42%, and pays a dividend with a yield of 1.00%.

One of Delek U.S. Holdings‘ closest competitors is Alon USA Energy Inc (NYSE:ALJ). Alon USA Energy last traded at around $11, has a market cap of $638.75 million and doesn’t have a price to earnings ratio. It has quarterly revenue growth of 91.10% and a return on equity of -4.54%. Alon USA Energy pays a dividend with a yield of 1.40%. Both companies are performing on par with each other.

Delek U.S. Holding’s cash position has improved, its second quarter 2011 balance sheet showed $148 million in cash, an increase from $111 million in the first quarter. It has quarterly earnings growth of 85.30% versus an industry average of 15.50%, and a return on equity of -1.42%, versus an industry average of 15.30%. Based on these performance indicators the company has greater growth potential than many of its competitors but it is underperforming them on its return on equity.

The outlook for the Oil and Gas refining and Marketing industry has been predicted as stable by Moody’s Investors Service. However, they have reduced the outlook to stable from positive on the view that an expected increase in refining capacity worldwide, combined with the slowdown in global slowdown will result in lower demand for refining products in 2012. However, the recent devaluation in the U.S. dollar which makes U.S. exports more attractive to international buyers and should benefit oil and gas refiners such as Delek.

When the industry outlook is considered in conjunction with Delek’s substantial increase in net income, improved cash holdings and strong quarterly earnings growth rate I can understand the investor interest in the company. Accordingly I rate Delek as a buy.

eGain Communications Corporation (NASDAQ:EGAN)

eGain Communications Corporation has a market cap of $194.53 million. For a 52 week period its trading range has been $0.90 to $9.48. It’s currently trading at around $7.97. The company reported second quarter earnings 2011 as $12.59 million, an increase from first quarter earnings of $8.92 million. Second quarter net income was $2.08 million, an increase from second quarter net income of $567,000. eGain Communications has quarterly revenue growth of 89.40%, a return on equity of 920.61%, and doesn’t pay a dividend.

One of eGain Communications’ closest competitors is Citrix Systems Inc (NASDAQ:CTXS). Citrix Systems is trading at around $74. It has a market cap of $14.08 billion with a price to earnings ratio of 41.26. It has quarterly revenue growth of 19.70% and a return on equity of 13.20%. Citrix Systems doesn’t pay a dividend. Based on these performance indicators it is being outperformed by eGain Communications.

eGain Communications’ cash position has declined, its second quarter 2011 balance sheet showed $12.46 million in cash, a decrease from $13.29 million in the first quarter. eGain Communications has quarterly revenue growth of 89.40%, well above the industry average of 21.80%, and a return on equity of 920.61%, versus an industry average of 11.40%. This indicates that it is outperforming many of its competitors.

The current outlook for the Business Software and Services industry is positive despite the overall gloomy economic outlook. Generally Business and Software Services companies represent a solid investment opportunity, even in a poor economic environment as they predominantly cater to corporations that in all likelihood will continue spending money on maintenance even if they reduce spending on new software licenses

Combined with this positive industry outlook, is the fact that eGain Communications has managed to increase net income in a difficult operating environment and has strong performance indicators. Therefore, I can understand the increased investor interest in the company and rate it as a buy.

Domino’s Pizza Inc (NYSE:DPZ)

Domino’s Pizza Inc has a market cap of $1.95 billion with a price to earnings ratio of 21.30. For a 52 week period its trading range has been $13.97 to $33.00. It’s currently trading at around $32. The company reported third quarter earnings 2011 as $376.33 million, a decrease from second quarter earnings of $384.93 million. Third quarter net income was $22.09 million, a decrease from second quarter net income of $25.25 million. The company is achieving quarterly revenue growth of 6.20%, no return on equity, and doesn’t pay a dividend.

One of Dominos Pizza’s closest competitors is Papa John's International Inc (NASDAQ:PZZA). Papa John's trades at around $35.50. It has a market cap of $899.45 million with a price to earnings ratio of 16.99. It has quarterly revenue growth of 11.90%, a return on equity of 28.28%, and doesn’t pay a dividend. Based on these performance indicators, Papa John’s is outperforming Domino’s Pizza.

Dominos Pizza’s cash position has declined, its third quarter 2011 balance sheet showed $148.76 million in cash, a decrease from $190.29 million in the second quarter. Dominos Pizza’s quarterly earnings growth of 6.20%, versus an industry average of 8.90%, and no return on equity versus an industry average of 29.60% indicates that it is underperforming many of its competitors.

The earnings outlook for the Restaurants Industry remains positive despite the poor economic climate, high unemployment and negative consumer sentiment. Throughout 2011 restaurant operators have reported a net increase in traffic and positive same store sales growth, as reported by the National Restaurant Association.

Despite the positive industry outlook, Domino’s Pizza’s poor performance indicators combined with a decrease in net income and cash holdings doesn’t make it a compelling investment opportunity and there are better investment opportunities in the industry. On this basis I rate Domino’s Pizza as a sell.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.