The market has had an excellent run so far in 2012. Volatility is at the lowest levels since early summer and worries about Europe seem to be ebbing. One of the things that struck me as I was looking for low priced stocks to take advantage of this "risk on" environment is the sheer amount of stocks that have exploded off a $3 price level. Equities from a variety of industries like Charming Shoppes (CHRS), Journal Communications (JRN) and OMNOVA Solutions (OMN) are up 40% to 80% in a few short months (See Chart).
Here are two stocks in the $3 price level that have very reasonable valuations, solid balance sheets and that are showing technical strength that could be the next to bounce up significantly provided investors risk appetite remains strong.
Extreme Networks (EXTR)
4 reasons EXTR is a buy at $3.50 a share:
- The company has a pristine balance with net cash of 82 cents a share on its books (almost a quarter of its market capitalization)
- The company's earnings are going in the right direction. It earned $.08 in FY2011, is expected to make $.30 in FY2012 and $.41 is projected by analysts for earnings in FY2013.
- The stock is showing increasing technical strength and just crossed its 200 day moving average (See Chart)
- The stock is priced at under 8 times forward earnings (6 times forward earnings if you back out cash) and 90 percent of revenues.
Fortress Investment Group (FIG)
4 reasons FIG is a buy at under $3.50 a share:
- The mean analysts' price target on Fortress is just above $5 a share. Credit Suisse has an "outperform" rating and a price target of $7 on FIG.
- The stock has a five year projected PEG of just .24 and is selling for just over 6 times forward earnings.
- The company has net cash on the balance sheet and just over 3 times trailing operating cash flow. The stock also looks like it has bottomed and just crossed over its 100 day moving average (See Chart)
- The sentiment on the stock has been impacted negatively by having Daniel Mudd (Ex CEO of Fannie Mae) running the firm. Now that he has stepped down, that overhang should be removed.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in FIG over the next 72 hours.