Interested in finding potentially undervalued stocks? Here's an idea to get you started.
We ran a screen based on the theoretical assumption that if P/E is equal to a constant K, growth in EPS estimates should be matched by proportionate growth in price. When they don't match up, a mispricing may have occurred.
We ran a screen on large-cap stocks from the tech sector for those exhibiting this mismatch between changes in EPS estimate and price. Of course, there's no reason to believe that P/E should stay constant - it's just an assumption for the sake of the screen.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the six stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.
We also created a price-weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 index over the last month. To access a complete analysis of this list's recent performance, click here.
Do you think these stocks should be trading higher? Use this list as a starting point for your own analysis.
List sorted by difference between change in EPS and price.
1. Baidu, Inc. (NASDAQ:BIDU): Provides Internet search services. Market cap of $43.35B. Over the last 30 days, analyst projected EPS has increased 0.68% (from $2.94 to $2.96), while the price has decreased 7.68% (from $134.63 to $124.29). The stock has had a couple of great days, gaining 5.5% over the last week.
2. SAP AG (NYSE:SAP): Provides business software primarily in Europe, the Middle East, Africa, the Americas, and the Asia Pacific Japan region. Market cap of $66.83B. Over the last 30 days, analyst projected EPS has increased 1.07% (from $2.80 to $2.83), while the price has decreased 6.77% (from $58.38 to $54.43). The stock has gained 7.65% over the last year.
3. Nokia Corporation (NYSE:NOK): Provides Internet and digital mapping and navigation services worldwide. Market cap of $19.64B. Over the last 30 days, analyst projected EPS has increased 2.78% (from $0.36 to $0.37), while the price has decreased 4.28% (from $5.37 to $5.14). The stock has lost 48.8% over the last year.
4. Broadcom Corp. (BRCM): Designs and develops semiconductors for wired and wireless communications. Market cap of $15.88B. Over the last 30 days, analyst projected EPS has increased 1.07% (from $2.80 to $2.83), while the price has decreased 3.19% (from $30.42 to $29.45). The stock has lost 32.68% over the last year.
5. Applied Materials Inc. (NASDAQ:AMAT): Provides manufacturing equipment, services, and software to the semiconductor, flat panel display, solar photovoltaic (PV), and related industries worldwide. Market cap of $13.97B. Over the last 30 days, analyst projected EPS has increased 1.35% (from $0.74 to $0.75), while the price has decreased 2.64% (from $10.99 to $10.70). Might be undervalued at current levels, with a PEG ratio at 0.8, and P/FCF ratio at 7.68. The stock has lost 22.01% over the last year.
6. TE Connectivity Ltd. (NYSE:TEL): Provides engineered electronic components, network solutions, specialty products, and subsea telecommunication systems. Market cap of $13.36B. Over the last 30 days, analyst projected EPS has increased 0.31% (from $3.26 to $3.27), while the price has decreased 1.81% (from $32.06 to $31.48). The stock has lost 11.3% over the last year.
*EPS data sourced from Yahoo! Finance, all other data sourced from Finviz.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.