3 Undervalued Stocks with Strong Technicals: Emergent Biosolution, Boots & Coots, Gushan Environmental

First stock we're gonna take a look at is Emergent Biosolution (NYSE: EBS). Fundamentally EBS looks strong as it carries a low forward P/E ratio of just 8x earnings on estimates of 1.06 eps in the year following. Currently the Biotech industry is trading at a much higher mutlitple of 26.06x making EBS look fairly cheap among its peers of biotechs. We could suggest a fair value for EBS of 27.60/share found by multiplying the forward earnings of 1.06 by the 26x industry average earnings multiple. This gives us plenty of room to capitalize on a trade with todays closing price of just 8.53:

Technical Analysis: After breaking out from its bearish descending channel EBS has made a strong run topping it off with todays strong rally on increased volume. Price is down AH and I expect some profits to be taken warranted its overbought. I want to pick up some share of EBS near $8 +/- $.20

Next we're going to take a look at a small cap stock thats making a very bullish trend reversal which broke out today indicated by a rounded bottom/ ascending triangle pattern that was accompanied by increased volume confirmation. The company is Boots & Coots International (AMEX: WEL). WEL holds a very strong forward earnings multiple of just 6x with the Oil & Well equipment industry average trading at a 14.67x multiple making this stock undervalued within its industry. This combined with a very technically strong short provides us with a golden opportunity to capitalize on a profitable trade. WEL's fair value within its industry is $4.25/share compared to today's closing price of 1.74. I want to go long WEL.

And last but not least we're going to take a look at a recent IPO, Gushan Environmental Energy Limited (NYSE: GU). GU has been stuck in a horizontal trading channel ever since its IPO making quite volatile swings up and down. Though with todays strong move and volume increase i think this could be the run that finally breaks this thing out to new all time highs. GU has strong forward growth carrying a significantly low forward earnings multiple of just 6x compared to the Specialty Chemicals trading average of 16x. GU is expecting earnings 1.76eps on 60% revenue growth for the following year giving this stock a very attractive future fair value near $28/share compared to todays closing price of just 11.97. Today's price close was right near strong horizontal resistance at the top of its channel and is down AH. This provides us with an opportunity to buy some cheaper shares on the dip. I want to be long GU around $11/share.

Disclosure: Long

Comments

[bmc1327]

Cameron, Thank you for a very informative analysis of these three stocks. I purchased GU at $9 and took a lot of heat from the "peanut gallery" but surprisingly the good news keeps flowing and the price keeps rising. I was considering cashing out on Monday but with 60% earning growth will hang in longer. Just may pick up WEL too- that was also on the radar but I opted for RIO.
Brent

[Ceviche Fund Partners LP/Dan Jacome]

nice call on GU: stock is up 75% in a matter of weeks. Looks like the run is more technically driven than anything fundamental, but nevertheless there is some takeover noise making the rounds at some desks we got in touch with.

Will look for GU entry and hope the run is on pause and that we don't see an exhaustion gap anytime soon.

[Cameron Fous]

No problem Brent. Also check out XIN for monday. I'm writing up an analysis on it as we speak and should be up here on seekingalpha soon. In the mean time you can read my analysis at my website. thetechnicaltrader.net