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Do you like to look for stocks that you believe are trading below their fair value? For ideas on how to start your search, we ran a screen.

We began by screening for stocks with high profitability, with higher gross, operating, and pretax margins than their industry peers. We then screened for those that also appear undervalued relative to target price, trading at significant discounts to even their lowest (most pessimistic) analyst target prices. Because target price is known to be inflated, we only considered the lowest target price, and to screen for companies with sufficient coverage, we only focus on companies with five or more different analyst target prices.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the top 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.

Do you think these companies should be trading higher? Use this list as a starting point for your own analysis.

1. American Equity Investment Life Holding Co. (NYSE:AEL): Underwrites fixed annuity and life insurance products in the United States and the District of Columbia. Of the 6 analysts that have set a target price on the stock, the lowest price target stands at $14.50. This implies a current upside of 17.22% from current levels around $12.37. TTM gross margin at 16.9% vs. industry average at 14.33%. TTM operating margin at 15.67% vs. industry average at 11.42%.TTM pretax margin at 11.66% vs. industry average at 8.66%.

2. Peabody Energy Corp. (NYSE:BTU): Engages in the exploration, mining, and production of coal. Of the 23 analysts that have set a target price on the stock, the lowest price target stands at $38.00. This implies a current upside of 23.74% from current levels around $30.71. TTM gross margin at 30.4% vs. industry average at 27.78%. TTM operating margin at 20.33% vs. industry average at 10.22%.TTM pretax margin at 17.23% vs. industry average at 10.42%.

3. CONSOL Energy Inc. (NYSE:CNX): Engages in the production of multi-fuel energy and provision of energy services primarily to the electric power generation industry in the United States. Of the 25 analysts that have set a target price on the stock, the lowest price target stands at $38.00. This implies a current upside of 16.42% from current levels around $32.64. TTM gross margin at 30.7% vs. industry average at 27.99%. TTM operating margin at 15.55% vs. industry average at 10.37%.TTM pretax margin at 13.21% vs. industry average at 10.55%.

4. Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR): Engages in the specialty coffee and coffee maker business. Of the 10 analysts that have set a target price on the stock, the lowest price target stands at $63.00. This implies a current upside of 22.71% from current levels around $51.34. TTM gross margin at 38.03% vs. industry average at 32.2%. TTM operating margin at 15.33% vs. industry average at 11.7%.TTM pretax margin at 14.16% vs. industry average at 9.28%.

5. OYO Geospace Corp. (OYOG): Engages in designing and manufacturing instruments and equipments used in the acquisition and processing of seismic data; and in the characterization and monitoring of producing oil and gas reservoirs. Of the 5 analysts that have set a target price on the stock, the lowest price target stands at $125.00. This implies a current upside of 15.31% from current levels around $108.40. TTM gross margin at 47.97% vs. industry average at 34.22%. TTM operating margin at 26.12% vs. industry average at 18.22%.TTM pretax margin at 26.34% vs. industry average at 13.73%.

6. Unit Corp. (NYSE:UNT): Engages in onshore contract drilling of oil and gas wells (for its own account as well as for other companies), exploration and production of oil and gas, and the gathering and transportation of natural gas. Of the 5 analysts that have set a target price on the stock, the lowest price target stands at $55.00. This implies a current upside of 18.43% from current levels around $46.44. TTM gross margin at 52.36% vs. industry average at 34.22%. TTM operating margin at 26.79% vs. industry average at 18.22%.TTM pretax margin at 26.38% vs. industry average at 13.73%.

*Target price data sourced from Yahoo! Finance, profitability data sourced from Fidelity, all other data sourced from Finviz.

Source: 6 Highly Profitable Stocks Undervalued By Target Price