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In this article we will review five stocks that are being heavily sold by investors with a view to determining whether this selling activity is being driven by negative investor sentiment or due to the stocks having poor performance fundamentals. The five stocks being reviewed have the lowest weighted alpha over the last year. In this article we will determine whether these stocks are being incorrectly undervalued by the market and represent buying opportunities.

Mecox Lane Limited (MCOX)

Mecox Lane Limited has a market cap of $95.51 million, and, due to its negative earnings, does not have a positive price to earnings ratio. Its 52 week trading range is $1.23 to $16.90. At the time of writing, it is trading at around $2. It reported second quarter earnings 2011 of $58.73 million, an increase from first quarter earnings of $48.06 million. Second quarter net income was -$3.39 million, an increase from first quarter net income of -$3.88 million. It has quarterly revenue growth of-0.10 %, a return on equity of -6.70% and doesn’t pay a dividend.

One of Mecox Lane’s competitors is Amazon.com Inc (AMZN). Amazon.com is trading at around $218 and has a market cap of $99.13 billion. It has a price to earnings ratio of 114.91, quarterly revenue growth of 43.90% and a return on equity of 12.29%. It doesn’t pay a dividend. Based on these key performance indicators, it is outperforming Mecox Lane.

Mecox Lane’s second quarter 2011 balance sheet showed cash of $83.34 million, a decrease from first quarter cash of $100.95 million. It has quarterly revenue growth of -.10%, versus an industry average of 5.90%, and a return on equity of negative 6.70%, versus an industry average of 12.70%. This indicates that it is underperforming many of its competitors.

The earnings outlook for the Specialty Retail industry is changing from a negative outlook to a positive outlook based upon the improving U.S. economy, early but tentative signs of a turnaround in the labor market, and pent up demand held down by the recession. However any investment in the industry should be made with caution as the ongoing eurozone crisis and high unemployment figures are having an ongoing negative effect on consumer sentiment. Recovery in the industry remains fragile and requires a boost from a sustained and significant recovery in jobs creation and income growth to be sustained.

When considering whether the Mecox Lane is being oversold but still represents a good investment we need to consider, not only the industry outlook, but also the company’s fundamentals. At this time they indicate that the company has declining earnings growth, indicating a potential decline in future net income, and a poor return on equity.

However, it is noted that Mecox Lane has managed to increase revenue in a difficult operating environment. Based upon this I believe that a wait-and-see approach should be taken with the company.

Clean Diesel Technologies Inc (CDTI)

Clean Diesel Technologies Inc has a market cap of $24.50 billion. For a 52 week period its trading range has been $1.50 to $21.50. It is currently trading at around $3.50. The company reported second quarter earnings for 2011 as $11.53 million, a decrease from first quarter earnings of $13.78 million. Second quarter net income was -$3.72 million, a decrease from first quarter net income of -$2.32 million. It has quarterly revenue growth of -10.80%, a return on equity of -181.91% and pays a dividend with a yield of 3.00%.

One of Clean Diesel Technologies competitors is Johnson Matthey plc (OTCPK:JMPLY). Johnson Matthey currently trades at around $58 and has a market cap of $6.08 billion. It doesn’t currently generate a quarterly revenue growth indicator, has a return on equity of 13.90%. Based on these performance indicators it is outperforming Clean Diesel Technologies.

Clean Diesel Technologies’ cash position has improved, its second quarter 2011 balance sheet showed $3.15 million in cash, an increase from $1.25 million in the first quarter. Its quarterly revenue growth of -10.80% is less than the industry average of 13.30%, and its return on equity of -181.91% is substantially lower than the industry average of 7.90%. These indicators show that Clean Diesel Technologies’ is underperforming the majority of its competitors.

The key drivers for the earnings outlook for the Pollution and Treatment Controls industry are government policy and regulatory change. The overall outlook for the industry is looking positive as greater pressure is placed on governments to enact legislation to reduce environmental damage.

Based upon Clean Diesel Technologies key performance indicators and reduced earnings it is not a particularly appetizing investment, although it is noted that it has increased its cash holdings and pays an attractive dividend yield. On this basis I prefer to take a wait-and-see approach with the company.

Motricity Inc (MOTR)

Motricity Inc has a market cap of $73.33 million and doesn’t currently have a price to earnings ratio. For a 52 week period its trading range has been $1.19 to $31.39. It is currently trading at around $1.50. The company reported second quarter earnings for 2011 as $34.63 million, an increase from first quarter earnings of $32.21 million. Second quarter net income was -$4.27 million, an increase from first quarter net income of -$6.14 million. The company is achieving quarterly revenue growth of 13.90%, a return on equity of -2.08%, and doesn’t pay a dividend.

One of Motricity’s competitors is Amdocs Ltd (DOX). Amdocs is currently trading at around $30. It has a market cap of $5.47 billion, with a price to earnings ratio of 16.29. It has quarterly revenue growth of 6.40%, a return on equity of 11%, and doesn’t pay a dividend. Based on these performance indicators it is outperforming Motricity.

Motricity’s cash position has substantially declined, its second quarter 2011 balance sheet showed $2.97 million in cash, compared to $61.59 million in the first quarter. Motricity’s quarterly revenue growth of 13.90%, versus the industry average of 28.80%, and a return on equity of -2.08%, versus an industry average of 11.80%, indicates it is underperforming many of its competitors.

The overall outlook for the Diversified Communications Services industry is seen as positive, primarily as it is a major infrastructure product and due to the increasing growth in wireless web based communication.

When the positive industry outlook is considered in conjunction with Motricity’s ability to increase revenue and net income in a difficult operating environment, combined with its rich patent and product portfolios it looks like an enticing investment opportunity. In addition, the recent decrease in the stock price has created a buying opportunity. On this basis I believe that Motricity is an interesting speculative buy.

American Realty Investors Inc (ARL)

American Realty Investors Inc has a market cap of $20.31 million. Its 52 week trading range has been $1.15 to $10.49. It is currently trading at around $2. It reported second quarter 2011 earnings of $37.53 million, a marginal decrease from first quarter earnings of $38.74 million. Second quarter net income was $13.82 million, a substantial increase from first quarter net income of $-9.82 million. American Realty Investors has quarterly revenue growth of 2.90%, a return on equity of -69.99%, and doesn’t pay a dividend.

One of American Realty Investors closest competitors is Kimco Realty Corporation (KIM). Kimco Realty currently trades at around $16.50 and has a market cap of $6.71 billion. It has a price to earnings ratio of 64.96, quarterly revenue growth of 3.60%, a return on equity of 3.14% and pays a dividend with a yield of 4.40%. Based on these performance indicators Kimco Realty is outperforming American Reality Investors.

American Realty Investors cash position has improved, the second quarter balance sheet showed $10.48 million in cash, an increase from $8.39 million for the first quarter. American Realty Investors quarterly revenue growth rate of 2.90%, versus an industry average of 31.70%, and its return on equity of -69.99%, which is less than the industry average of 15.30%. This indicates that it is underperforming the majority of its competitors.

The earnings outlook for the Property Management industry is negative primarily due to the poor economic climate that is driving decreased demand for commercial space, and many analysts do not see demand improving for some time.

Despite the negative industry outlook, there appear to be some positive aspects for American Realty Investors: It has had a significant improvement in net income in the second quarter combined with an increase in its cash position. On this basis the recent decrease in the stock price represents a speculative buying opportunity.

Shinhan Financial Group Co Ltd (SHG)

Shinhan Financial Group Co Ltd has a market cap of $16.39 billion and a price to earnings ratio of 7.02. Its 52 week trading range is $61.15 to $101.34. It is currently trading at around $69. It reported second quarter earnings 2011 of $4 billion, an increase from first quarter earnings of $3.59 billion. Second quarter net income was $925.48 million, a substantial increase from first quarter net income of $822.64 million. Shinhan Financial Group has quarterly revenue growth of 65.00%, no return on equity and pays a dividend with a yield of 2.70%.

One of Shinhan Financial Group’s closest competitors is KB Financial Group, Inc (KB). KB Financial Group currently trades at around $34 and has a market cap of $11.97 billion. It has a price to earnings ratio of 10.41, quarterly revenue growth of 248.40% and no return on equity. It pays a dividend with a yield of 0.20%. Based on these key performance indicators, it is being outperformed by Shinhan Financial Group.

Shinhan Financial Group’s first half 2011 balance sheet showed cash of 21.13 billion, a decrease from the previous end of year balance sheet 2011 of $23.16 billion. Shinhan Financial Group’s quarterly revenue growth of 65.00%, versus an industry average of 22.10%, and no return on equity of %, versus an industry average of 9.40%, indicates that it is has greater growth prospects than its competitors but needs to focus on improving its return on equity.

The outlook for the global banking industry is quite negative primarily due to problems with asset quality, weak revenue growth, increased costs, tight credit marks and weak loan demand. This is being exacerbated by the ongoing eurozone problems.

However, despite the overall negative industry outlook, Shinhan Financial Group is presenting strong growth prospects and has reported a significant increase in net income in a difficult operating environment. On this basis, when considered in conjunction with the dividend yield and recent drop in the stock price, it does represent a worthwhile investment opportunity.

Source: 5 Stocks Seeing Heavy Selling: Investment Opportunities?