I recently wrote an article regarding four dividend stocks that have become heavily overbought. These stocks were popular due to extreme instability of markets in 2011, which led investors to rush into stable stocks with fat dividends. In this unstable market, there were several stocks that returned satisfying amounts to its shareholders. Apple (AAPL) returned 25.5% for instance, and Reynolds American (RAI) returned 26.9% in a year.
On the other hand, there are some stocks that are still suffering from sell-offs at grand scales. I have found five large-cap stocks that are highly oversold. I have analyzed all of them from a fundamental perspective, and added my O-Metrix Grading System, where possible. Here is an analysis of five heavily oversold stocks. (Data from Finviz / Morningstar, and current as of January 3. You can download the O-Metrix calculator, here.):
Oracle is suffering from the poor quarter results for fiscal year 2012, losing about 13% of its value since the announcement. It has a P/E ratio of 14.1, and a forward P/E ratio of 10.0. Analysts estimate a 14.7% annual EPS growth for the next five years. It pays a symbolic dividend of 0.94%, while the profit margin is 25.5%.
While Oracle might be showing signs of a slowdown, the merger with RightNow Technologies (RNOW) might save the company. However, the fact that most of its business lies in Europe is hardening its economic recovery. Oracle is still paying stable dividends as it reserves its strong revenue, assets and cash flow. The company started the new year with a significant upward momentum, rising to mid-$26s in the first work day of the year. We can consider this level a good entry point, as it is offering quite a deep value. Oracle is trading way below its fair-value range, and it will hit $40 after some time. Oracle has an average O-Metrix score of 6.48.
EMC Corp. (EMC)
EMC seems determined to be the symbol of economic recovery this year. The company shows a trailing P/E ratio of 21.3, and a forward P/E ratio of 12.5. Five-year annual EPS growth forecast is 16.0%. It offers no dividend, and profit margin is 11.7%, higher than the industry average of 7.9%.
EMC had a good start with the first work day of the new year. The company is selling 13 times forward earnings, which leads to an about 25% discount to its 5-year average. Standard & Poors has recently upgraded EMC to Strong Buy from Hold. A PEG of 0.8 and a debt-to equity of 0.0 are two other convincing numbers. Cash flow, revenue and assets are tidy. At a price of $22, EMC is a screaming bargain. There will be a great economic recovery in EMC, so buy this name as soon as possible. Based on these indicators, the stock has an O-Metrix score of 4.73.
Chesapeake Energy Corp. (CHK)
Chesapeake will receive $2.03 billion in a joint venture with Utica Shale. The company has received $0.6 billion of the total amount already. Chesapeake is selling 11 times earnings and 9 times forward earnings. Estimated annualized EPS growth is 11.0% for the next five years. Profit margin is 12.2%, and it pays a 1.57% dividend.
The demand for natural gas is expected to rise much more than that of oil over the next years. China is already going for natural gas-powered vehicles. Dividends, revenue, and assets are quite satisfactory. Price-to book (1.1) and price-to sales (1.5) ratios are other good numbers, way below their industry averages. Forward P/E ratio leads to a 40% discount to its five year average, as well. Chesapeake seems much better than any other energy stock in the long run, with so many joint ventures and insider buying. This level is a tremendous buy point. Chesapeake has an O-Metrix score of 6.19.
Bed Bath & Beyond (BBBY)
Bed Bath is on my debt-free and cash-rich companies list, which is fairly priced for its average growth estimate. The New Jersey-based retailer is trading at a P/E ratio of 16.5, and a lower forward P/E ratio of 13.0. Analysts expect the company to have a 15.2% annualized EPS growth in the next five years. Profit margin (9.7%) more than doubles the industry average of 3.8%, and it pays no dividend.
The company reported good Q3 2011 quarterly results. The company has already passed the $58 level at the time of writing. Earnings-per share [ttm] is going straight up since February 2009. Debt-to equity ratio (0.0) is also attractive, well below the industry average of 1.1. Due to the great competition in the industry, Bed Bath might show a recovery in moderate speed. The company is taking support from $58 level, so hop in at this price. Based on these numbers, Bed Bath has an above-average O-Metrix score of 5.15.
V.F. Corp. (VFC)
VF Corp. jumped around 3% on Tuesday, after having its target price increased by analysts. It has a P/E ratio of 20.5, and a forward P/E ratio of 13.4. Five-year annual EPS growth forecast is 11.4%. It sports a 2.27% dividend, and the profit margin is 7.9%, way higher than the industry average of 5.0%.
V.F. Corp. products are quite popular in the U.S., although many of the customers never heard of it (products include Harley-Davidson, Lee, Wrangler, The North Face, Vans, JanSport, and Patagonia). The company is making sales all over the world at quite big numbers, and it was one of the best performers in the markets last year. Dividends and overall performance are admirably good. Earnings-per share [ttm] has a very strong momentum. The company is a must-buy on any weakness. Current price is OK for entry. VFC has an O-Metrix score of 4.03.
Disclosure: I am long AAPL.