Interested in potential rebound stocks? For ideas on where to look, we ran a screen you may be interested in.
We screened for stocks that are technically oversold, with RSI(14) below 40. We then ran DuPont analysis of return on equity (ROE) profitability for this list of oversold stocks.
DuPont analyzes ROE (net income/equity) profitability by breaking ROE up into three components:
= (Net Profit/Equity)
= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)
= (Net Profit margin)*(Asset turnover)*(Leverage ratio)
We therefore focus on companies with the following positive characteristics: Increasing ROE along with,
- Decreasing leverage, i.e. decreasing Asset/Equity ratio
- Improving asset use efficiency (i.e. increasing Sales/Assets ratio) and improving net profit margin (i.e. increasing Net Income/Sales ratio)
Companies with all of these characteristics are experiencing increasing profits due to operations and not to increased use of financial leverage.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the 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 companies have strong profitability? Use this list as a starting point for your own analysis.
1. DuPont Fabros Technology, Inc. (DFT): Engages in the ownership, acquisition, development, operation, management, and lease of large-scale data center facilities in the United States. RSI(14) at 36.79. MRQ net profit margin at 17.9% vs. 14.26% y/y. MRQ sales/assets at 0.03 vs. 0.028 y/y. MRQ assets/equity at 2.064 vs. 2.219 y/y.
2. Gardner Denver Inc. (GDI): Designs, manufactures, and markets engineered industrial machinery and related parts and services primarily in North America, Europe, Asia, South America, Africa, and Australia. RSI(14) at 38.04. MRQ net profit margin at 11.97% vs. 9.44% y/y. MRQ sales/assets at 0.288 vs. 0.243 y/y. MRQ assets/equity at 1.724 vs. 1.764 y/y.
3. G&K Services Inc. (GKSR): Provides branded work apparel and facility services programs in North America. RSI(14) at 38.45. MRQ net profit margin at 4.36% vs. 4.24% y/y. MRQ sales/assets at 0.252 vs. 0.245 y/y. MRQ assets/equity at 1.642 vs. 1.694 y/y.
4. Quicksilver Resources Inc. (KWK): Engages in the exploration, development, and production of unconventional natural gas onshore in North America. RSI(14) at 38.39. MRQ net profit margin at 11.04% vs. 9.17% y/y. MRQ sales/assets at 0.069 vs. 0.06 y/y. MRQ assets/equity at 3.367 vs. 4.777 y/y.
5. Questcor Pharmaceuticals, Inc. (QCOR): Provides prescription drugs for central nervous system and inflammatory disorders. RSI(14) at 39.94. MRQ net profit margin at 38.2% vs. 36.84% y/y. MRQ sales/assets at 0.272 vs. 0.213 y/y. MRQ assets/equity at 1.272 vs. 1.324 y/y.
*Accounting data sourced from Google Finance, all other data sourced from Finviz.