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Do you consider yourself a contrarian investor? For ideas on how to search for potentially underestimated and undervalued names, we ran a screen.

We began by screening for stocks with bearish sentiment, with float shorts above 10%. We then screened for those that also appear undervalued relative to earnings growth, with PEG below 1.

Then to analyze these companies' profitability, we ran DuPont analysis on the names. DuPont analyzes profitability by breaking up return on equity (net income/equity) into three components:

ROE

= (Net Profit/Equity)

= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)

= (Net Profit margin)*(Asset turnover)*(Leverage ratio)

Because increases in net margin and asset turnover are considered good things, DuPont focuses on companies with these 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)

Those companies that pass DuPont are seeing positive trends in the sources of their increasing profitability, which adds further weight to the idea that the names are profitable.

(click to enlarge)

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

List sorted by float short.

1. Vera Bradley, Inc. (NASDAQ:VRA): Engages in the design, production, marketing, and retail of functional accessories for women under the Vera Bradley brand. Market cap at $988.53M, most recent closing price at $24.0. PEG at 0.83. Float short at 47.77%. MRQ net profit margin at 14.94% vs. 13.01% y/y. MRQ sales/assets at 0.613 vs. 0.531 y/y. MRQ assets/equity at 1.77 vs. 3.203 y/y.

2. Questcor Pharmaceuticals, Inc. (NASDAQ:QCOR): Provides prescription drugs for central nervous system and inflammatory disorders. Market cap at $2.62B, most recent closing price at $41.81. PEG at 0.67. Float short at 25.46%. MRQ net profit margin at 40.16% vs. 30.46% y/y. MRQ sales/assets at 0.317 vs. 0.228 y/y. MRQ assets/equity at 1.293 vs. 1.314 y/y.

3. Sonic Automotive Inc. (NYSE:SAH): Operates as an automotive retailer in the United States. Market cap at $803.48M, most recent closing price at $15.30. PEG at 0.61. Float short at 22.56%. MRQ net profit margin at 1.03% vs. 0.82% y/y. MRQ sales/assets at 0.823 vs. 0.784 y/y. MRQ assets/equity at 4.43 vs. 4.848 y/y.

4. Kronos Worldwide Inc. (NYSE:KRO): Engages in the production and marketing of titanium dioxide pigments in North America and Europe. Market cap at $2.02B, most recent closing price at $17.80. PEG at 0.73. Float short at 21.65%. MRQ net profit margin at 24.39% vs. 14.34% y/y. MRQ sales/assets at 0.272 vs. 0.236 y/y. MRQ assets/equity at 1.955 vs. 2.323 y/y.

5. Valassis Communications Inc. (NYSE:VCI): Operates as a media and marketing services company primarily in the United States. Market cap at $889.84M, most recent closing price at $21.07. PEG at 0.62. Float short at 20.53%. MRQ net profit margin at 5.09% vs. 3.91% y/y. MRQ sales/assets at 0.325 vs. 0.31 y/y. MRQ assets/equity at 3.292 vs. 3.432 y/y.

6. GT Advanced Technologies Inc. (NASDAQ:GTAT): Provides polysilicon production technology and multicrystalline ingot growth systems, and related photovoltaic manufacturing services for the solar industry worldwide. Market cap at $508.69M, most recent closing price at $4.35. PEG at 0.29. Float short at 20.04%. MRQ net profit margin at 22.34% vs. 19.1% y/y. MRQ sales/assets at 0.312 vs. 0.241 y/y. MRQ assets/equity at 3.416 vs. 5.577 y/y.

7. Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR): Engages in the specialty coffee and coffee maker business. Market cap at $3.93B, most recent closing price at $25.62. PEG at 0.37. Float short at 18.58%. MRQ net profit margin at 10.51% vs. 10.09% y/y. MRQ sales/assets at 0.267 vs. 0.243 y/y. MRQ assets/equity at 1.54 vs. 2.553 y/y.

8. Twin Disc Inc. (NASDAQ:TWIN): Designs, manufactures, and sells marine and heavy duty off-highway power transmission equipment. Market cap at $221.86M, most recent closing price at $20.35. PEG at 0.53. Float short at 16.57%. MRQ net profit margin at 9.83% vs. 5.95% y/y. MRQ sales/assets at 0.293 vs. 0.26 y/y. MRQ assets/equity at 2.083 vs. 2.557 y/y.

9. DFC Global Corp. (NASDAQ:DLLR): Provides retail financial services to unbanked and under-banked consumers, and small businesses. Market cap at $682.41M, most recent closing price at $15.86. PEG at 0.54. Float short at 13.12%. MRQ net profit margin at 11.67% vs. 7.94% y/y. MRQ sales/assets at 0.153 vs. 0.127 y/y. MRQ assets/equity at 3.618 vs. 5.611 y/y.

10. American Axle & Manufacturing Holdings Inc. (NYSE:AXL): Engages in the manufacture, engineering, design, and validation of driveline and drivetrain systems, and related components and chassis modules for automotive industry in the United States. Market cap at $697.51M, most recent closing price at $9.87. PEG at 0.34. Float short at 10.92%. MRQ net profit margin at 6.81% vs. 5.84% y/y. MRQ sales/assets at 0.3 vs. 0.298 y/y. MRQ assets/equity at -6.648 vs. -5.083 y/y.

11. BorgWarner Inc. (NYSE:BWA): Engages in the manufacture and sale of engineered automotive systems and components primarily for power train applications worldwide. Market cap at $8.52B, most recent closing price at $76.96. PEG at 0.66. Float short at 10.70%. MRQ net profit margin at 8.26% vs. 7.19% y/y. MRQ sales/assets at 0.304 vs. 0.288 y/y. MRQ assets/equity at 2.363 vs. 2.604 y/y.

12. Finish Line Inc. (NASDAQ:FINL): Operates as a mall-based specialty retailer in the United States. Market cap at $1.14B, most recent closing price at $22.22. PEG at 0.94. Float short at 10.15%. MRQ net profit margin at 9.19% vs. 8.91% y/y. MRQ sales/assets at 0.641 vs. 0.578 y/y. MRQ assets/equity at 1.344 vs. 1.356 y/y.

*Accounting data sourced from Google Finance, all other data sourced from Finviz.

Source: 12 Undervalued, Highly Shorted Stocks With Strong Sources Of Profitability