Back in October I wrote an article about how stocks could reclaim highs from July. At the time, numerous stocks were down 50-60% from those July highs after the dramatic summer sell-off that didn't appear to be justified.
Since that article, numerous stocks such as Toll Brothers (TOL) and F5 Networks (FFIV) have already recaptured the July highs and more. Much to my surprise, homebuilders lead the market higher. Not to mention the Nasdaq composite has soared to 11 year highs.
Clearly the theory has worked in some situations, such as the above growth stocks and particularly with most dividend-paying stocks. Numerous stocks still trade considerably below those July highs, providing opportunities for investors.
The original report focused on Riverbed Tech (RVBD), Terex (TEX), Hartford Financial (HIG), and Weatherford International (WFT). None of these stocks has recaptured those July highs providing plenty of opportunity for investors to still get in on these stocks.
Below I'll discuss the developments in these stocks and highlight another stock in NII Holdings (NIHD) that offers even greater potential for a major rebound.
Riverbed Tech (RVBD)- This networking equipment company ran into a wall again while attempting a breakout at $30. Recent guidance for Q1'12 disappointed the market, causing another gap down like the one in July that started the descent. However, the stock bounced last week as investors have become more comfortable with management's explanation that numerous product transitions would be the cause of any disappointment.
As evidenced by the analyst opinions consolidated in this Barron's blog entry, most remained bullish on the stock, so a quick bounce shouldn't have been too much of a surprise. Now the question remains whether Riverbed can reclaim the July highs back around $42, which is more than 60% above Friday's close just below $26.
Terex (TEX)- This construction equipment and crane manufacturer had the biggest bounce from the original October article. The stock has spent the last 45 days on a straight path upwards, but it still hasn't reached $23, while the July high was $30.
As mentioned back then, evidence from a United Rentals (URI) earnings report and presentations suggested that the crane market was rebounding. This was reconfirmed by the recent earnings report of competitor Manitowoc (MTW). Hence the huge gains that probably aren't done yet.
Hartford Financial (HIG)- This insurance stock has been virtually sideways since October. Though hinting at a breakout with Friday's close at just over $17, the stock remains considerably below the July high of $27.
The company was impacted most of the year by low interest rates and natural disasters leading to large catastrophe losses. Now as the calendar has changed to 2012, investors are likely back looking at the earnings potential and low book value. With strong earnings potential and a book value north of $40, the stock appears to have finally grabbed investor attention. Not to mention any resolution in Europe will help all financial stocks.
Weatherford International (WFT)- This oil service company stalled for most of the last few months, but since the start of 2012, it has been surging to recent highs. Now trading above the 200 DMA, the stock appears finally ready to reclaim the July highs, roughly $5 higher.
With Weatherford having a larger international presence, the stock hasn't been impacted as much by swooning natural gas prices in the U.S. Natural gas prices outside the U.S. remain considerably higher and along with high global oil prices, this stock could easily approach the February highs over $26. That level was reached before the Arab spring and accounting issues knocked the stock down.
NII Holdings (NIHD)- This Latin American wireless provider is a new addition to this list. Though well respected as a premium wireless provider in Latin America, the stock continued even lower after the October market bottom. In each subsequent month, the stock has hit a new low, eventually leading to a drop of more than 50% from the July high around $44.
NII Holdings is building 3G networks in Brazil, Mexico, and Chile along with an existing one in Peru, making this company very attractive to wireless providers. This suggests that the stock might not drop further, as spectrum in those countries will eventually return to being very valuable.
On Thursday, the stock jumped 10%, finally breaking a downtrend from July. The higher high and breaking above the 50 DMA is also suggestive of a different mindset by investors.
The above are examples of stocks that have huge potential for catching up to the market. The original stocks have made solid gains since the report back in October. Plenty of room exists for more gains as the general market has been absorbed with dividend stocks. In fact, in most cases the recapture of 52 week highs beyond that of just July remains very plausible.
As the original article contemplated, why did these stocks trade down in the first place? Now that the market has confirmed that rationale, it's just a matter of time before these stocks follow it up.
Additional disclosure: Please consult your financial advisor before making any investment decisions.