The stocks discussed are S&P 500 (NYSEARCA:SPY) large cap or better, currently have buy or strong buy ratings by analysts, have greatly underperformed the market year to date and have PEG ratios near or below one. The PEG ratio is a widely accepted indicator of a stock's prospective value. It is favored by many analysts over the price/earnings ratio for the reason that it also accounts for growth. Similar to the P/E ratio, a lower PEG means that the stock is more undervalued. Many investors use one as the cut-off point for PEG ratios. A PEG of 1 or less is believed to be promising. As Warren Buffett would say, "Price is what you pay, value is what you get." Additionally, these stocks have great stories and positive catalysts for future growth. Nevertheless, they were sold off hard this year by an average of approximately 26 percent due to negative macroeconomic headlines for the most part. If you have dry powder, this is an excellent opportunity to pick up some shares in the following stocks.
Moreover, most of these stocks are trading well below consensus analysts’ estimates; several have recent upgrades and positive analyst comments and positive catalysts for future growth. Below is a table with detailed statistics regarding each company’s current performance and fundamental information, followed by a brief review of each company’s recent news.
Click to enlarge
Company Performance Statistics
Company Fundamental Statistics
(Tables provided by Finviz.com)
Possible Catalysts / Recent News
Bank of America Corporation (NYSE:BAC) - In response to customer feedback and the changing competitive marketplace, Bank of America no longer intends to implement a debit usage fee. BAC’s recognition of this fumble is a sign they are listening and adapting to their clients wishes. (Read more here)
Ford Motor Co. (NYSE:F) - Fans of the Ford Flex have even more to love next year with an upgraded model with a sleek new look and even more technology to make driving safer, easier and more fuel-efficient. (Read more here)
Dell Inc. (NASDAQ:DELL) - Dell Boomi, the world’s largest integration cloud, today announced new capabilities that utilize the power of its AtomSphere user community to simplify cloud and software-as-a-service (SaaS) application integration for medium and large enterprises. (Read more here)
Corning Inc. (NYSE:GLW) - Corning Announces Third-Quarter Results - “We had a very respectable quarter with all of our segments showing double-digit percentage sales growth over last year,” said Wendell P. Weeks, chairman, chief executive officer and president. (Read more here)
Applied Materials, Inc. (NASDAQ:AMAT) - Applied Materials announced the successful completion of its acquisition of Varian Semiconductor Equipment Associates, Inc. (NASDAQ:VSEA). The acquisition of Varian enhances Applied's extensive portfolio with market-leading ion implantation technology, a market that represents an annual opportunity approaching $1.5 billion. (read more here)
Charles Schwab Corp. (NYSE:SCHW) - Charles Schwab, a provider of full-service, high-value brokerage services, has launched the latest evolution in its award-winning “Talk to Chuck” advertising campaign, inviting consumers into straightforward conversations about their individual financial needs and goals. (Read more here)
Alcoa, Inc. (NYSE:AA) - Alcoa today announced it has developed a new all-aluminum space frame and bus design for BYD that has reduced the weight of the new BYD Electric Bus body by 40 percent, or nearly one ton, versus steel options. The first two BYD Electric Bus prototypes were launched this week in Changsha City, Hunan Province, China. (Read more here)
Stocks have advanced from a fresh burst of buying interest. The move corresponds with a rebound by the euro, which has recovered today with a gain of almost 0.8%. Treasuries have been distressed reinvigorated interest in stocks causing uninspired auction results. Thursday's $16 billion auction of 30-year Bonds produced a yield of a little over three percent and drew a bid-to-cover of 2.40 and an indirect bidder participation rate of 28.4%. For contrast, the ten or so auctions drew an average bid-to-cover ratio of 2.65 and an indirect bidder rate of 28.4%. This could be interpreted as a signal it’s time to buy stocks.
Based on several bullish technical indicators, the market's unending resilience in the face of continual negative headlines, the performance of S&P 500 stocks this earnings season and a bullish outside month in October, I believe the market is setting up for a year-end rally regardless of the near-term noise. Additionally, top analyst Joe Terranova of CNBC's Fast Money and Virtus Investments made some prescient points in his latest blog regarding positive developments that may come to fruition over the coming months, returning markets to positive territory. Joe stated;
Italian bond yields have risen rather dramatically this week despite some political actions that should eventually lead to a favorable resolution for the European Union’s third largest economy, Italy.
- The IMF and EU Commission will adopt a stricter, more involved review of Italian fiscal measures.
- Prime Minister Berlusconi has pledged to resign after losing his majority.
- The removal of Berlusconi is a necessary component in order to give confidence a chance to reemerge.
- Currently absent is confidence in the ability of Italian government officials to navigate its budget away from a bond default.
Answer this question: How many times has the stock market roared back after a correction? The fact is, every time. If you told someone in 1987 on Black Monday that the Dow would be almost ten-fold higher within 20 years’ time, that person would have called you crazy, but you would have been correct. Who is to say how high the market can climb from here? Bespoke Investment Group is always digging up interesting statistics. Here is one I feel pertains to the current environment.
Bespoke Investment Group stated on CNBC’s Street Signs:
Since 1928, S&P (SPY) averaged gain of 5.55% in quarter after a 10%+ down quarter and 17 of the last 21 economic indicators have come in better than expected, indicating the fourth quarter could be a snap back quarter.
Those are pretty good odds. I believe the European sovereign debt issues will be resolved. The stranglehold they have had on the markets is soon to be released, so we can go back to focusing on fundamentals. 70 percent of companies in the S&P beat estimates this earnings season-- a statistic lost in the whirlwind of eurozone turmoil. Today is a great buying opportunity.
In finance, a contrarian is one who attempts to profit by investing in a manner that differs from the consensus, when the consensus opinion appears to be wrong. A contrarian believes that certain crowd behavior among investors can lead to exploitable mis-pricings in securities markets. For example, widespread pessimism about a stock can drive a price so low that it overstates the company's risks, and understates its prospects for returning to profitability. Identifying and purchasing such distressed stocks, and selling them after the company recovers, can lead to above-average gains. I believe the following banking stocks may present such an opportunity, if for nothing else simply due to mean reversion. The mean reversion strategy is based on the mathematical premise that all prices will eventually move back towards the mean, or average, return. Thus, if a stock is underperforming, its price will move towards its average value when the market rebounds. Many of these stocks have been taken down in sympathy with the global market sell-off or due to headline risk. Stock market correlation is at an all-time high, but when the market recovers, I expect these stocks to experience a significant rebound.
It is hard to think beyond the current state of affairs when negative preoccupations always seem to repeat themselves, and you are stuck on a roller coaster ride of continual highs and lows, but the ride inevitably ends, the storm clouds clear, and you feel the first ray of hope shine down. The problem is that it’s already too late to buy due to the fact all the savvy investors bought in and ran up the price while you were hiding in your storm cellar. Fortune favors the bold. Hopefully, you can take advantage of these amazing buying opportunities.
I’m not saying that you should buy into a full position today, but this may be a good opportunity to start picking up some shares, maybe a tenth or a quarter at a time. There may be more volatility in front of us, even with the more than 10% drop in the market recently and the restructuring of Greek sovereign debt. Nevertheless, this may be a good point to start a position in buying opportunities.
Disclaimer: Please use this information as a starting point for your own due diligence.