Certain stocks are trading at an extreme discount to the historical valuations based on an unprecedented downturn in global growth. The downward spiral has been fashioned by a diverse set of macroeconomic and geopolitical dynamics influencing the markets. The global predicament has been on a scale the world hasn't seen in a generation. 2008's so-called Great Recession's only peer seems to be the Great Depression of the 1930s.
You would think that some fantastic buying opportunities have been created, and you would be right. All of the stocks in this article are down one to over tenfold and are currently trading near multi-year lows. Nevertheless, we may have just seen the bottom based on the recent performance of these stocks. All these stocks are up significantly over the last month.
The fact that these stocks are down significantly from their multi-year highs leads me to believe when the market recovers, they could easily double. Part of it is the math involved. If you buy a stock after it has lost 50% of its value and it recovers to its former level, you will essentially have a 100% gain or a double. For example, Ford (F) is down 50% from an $18 high to a low of $9. As stated earlier, most of these stocks have lost vastly more than 50% over the last few years making a double that much more easily attained.
Moreover, it appears we may be at an inflection point. Often, this is precisely the time to pick up shares in out of favor stocks. The Dow has topped 13,000 and is trading at multi-year highs. The spike in gold is telegraphing the Federal Reserve, the ECB and other global central banks will provide further monetary stimulus to revive the global economy.
These five stocks may present buying opportunities at current levels. The stocks covered in this article have spiked recently. The stocks are trading on average 23% below their 52-week highs and have an average upside potential of 21% based on analysts' mean price targets. Furthermore, the stocks have recently bounced off multi-year lows yet trading vastly below multi-year highs with improving fundamentals.
In the following section, we will perform a review of the fundamental and technical state of each company to determine if this is the right time to start a position. The following table depicts summary statistics and Thursday's performance for the stocks. The following charts are provided by Finviz.com.
Click to enlarge
Bank of America Corporation (BAC)
BAC is up 15% over the past month. The company is down nearly fivefold from its 2006 high of $47.
The company is trading 19% below its 52-week high and has 14% upside potential based on the analysts' mean target price of $9.33 for the company. BAC was trading Thursday at $8.15, down almost 1% for the day.
Fundamentally, BAC has several positives. The company has a forward P/E of 8.86. It is trading for 6.21 times fee cash flow. BAC has a net profit margin of 11.62% and a PEG ratio of 1.23. It is trading for approximately one-third of book value. EPS next year is expected to rise by 64%. BAC insider ownership has increased by 59% over the past six months.
Technically, BAC is exhibiting positive characteristics. The stock just recently broke out of a descending triangle to the upside. This is extremely bullish. The coveted golden cross was just achieved by the stock. This is when the 50-day SMA crosses above the 200-day SMA and is considered extremely bullish.
The stock has continued to rise in the face of macro headwinds. This tells me the bad news has been priced in to the stock. The stock recently breached the $8.20 high mark set in June confirming the uptrend and completing the double bottom reversal pattern. I am long the stock now.
Citigroup, Inc. (C)
Citigroup is up 15% over the past month. The company is down nearly sixteen fold from its 2007 high of a split-adjusted $500 per share.
The company is trading 23% below its 52-week high and has 34% upside potential based on the analysts' mean target price of $39.56 for the company. Citigroup was trading Thursday for $29.59, down 3% for the day.
Fundamentally, Citigroup has several positives. The company has a forward P/E of 6.57. Citigroup is trading for approximately half of book value. The company has a PEG ratio of .99 and a net profit margin of 14.19%. Citigroup insider ownership has increased by 20.56% over the past six months.
Technically, the stock has begun to break out of a long-term downtrend. The 20-day SMA just crossed above the 50-day SMA and the stock broke through resistance at the 200-day sma, which is highly bullish. The stock has posted higher highs and higher lows since mid-July. Just like BAC, Citigroup seems to have shirked off the bad news and headwinds lately. Gold's recent strength is indicating the powers that be in Europe are preparing to address the eurozone debt debacle in a big way. This may be a factor in current U.S. bank melt up. The stock is a buy.
Ford Motor Co.
Ford is up 6% over the past month. The company is down one fold from its 2010 high of $18 per share.
The company is trading 27% below its 52-week high and has 45% upside based on the analysts' mean target price of $13.69 for the company. Ford was trading Thursday for $9.45, down slightly for the day.
Fundamentally, Ford has several positives. The company has a forward P/E of 6.30. Ford is trading for 7.82 times free cash flow and slightly over two times book value. EPS next year is expected to rise by 19%. The company pays a dividend with a yield of 2.12% and has a PEG ratio of 0.29 and a net profit margin of 13.28%. Ford insider ownership has increased by 53% over the past six months.
Technically, Ford is positive and attempting to complete a trend reversal. The stock has posted higher highs and higher lows since the start of August. The stock is trading slightly above the 50-day SMA currently and the 20-day sma has completely reversed course, which is the first step in the process. Ford is a buy here.
Sprint Nextel Corp. (S)
Sprint is up 42% over the past month. The company is down fourfold from its 2005 high of $24 per share.
Sprint has nearly doubled over the past two months. Sprint is trading on par with its consensus estimates and 12% below its 52-week high. Sprint was trading Thursday for $4.78, down 2% for the day.
Fundamentally, Sprint has some positives. Sprint is trading for 1.5 times book value and only 40% of sales. EPS next year is expected to rise by 39.40%. Insider ownership is up 45% over the past six months.
Technically, Sprint is neither over bought nor oversold. The stock achieved the golden cross at the end of June and proved the bullish indicator true. This is the beginning of a long-term rally not the end of a short squeeze. Sprint is the only company that offers the Apple iPhone with unlimited data, which is driving subscriber growth. The company is cleaning up the balance sheet and executing well on operational objectives. The stock is a buy; even so wait for a pullback to jump in. The recent parabolic move makes me somewhat weary.
Sirius XM Radio Inc. (SIRI)
SIRI is up 20% over the past month. The company is down over twofold from its 2005 high of $8 per share.
The company is trading 5% below its 52-week high, and has 12% upside potential based on the analysts' mean target price of $2.79. SIRI was trading Thursday for $2.50, down almost 2% for the day.
Fundamentally, SIRI has several positives. SIRI has a forward P/E of 23, and trades for 19 times free cash flow. EPS for the next five years is expected to rise by 23%. According to Finviz.com, quarter-over-quarter sales and EPS are up 13% and 1691%, respectively. SIRI's TTM ROE is 152%, and the company's net profit margin is 107%.
Technically, SIRI has been in a well-defined uptrend since the start of July. The coveted golden cross was just achieved by the stock. This is when the 50-day SMA crosses above the 200-day SMA and is considered extremely bullish. I started a position in the stock. Rumors are swirling that SIRI maybe be preparing to do a stock buyback in the near future. If the stock buyback rumors come to fruition, the stock will continue to rise.
The Bottom Line
I believe the market has significant upside potential as global markets gain traction. As current issues fade from the forefront of investors' minds and fundamentals come back into focus, these stocks will regain their past glory. When the market sells off, it's time to shop for bargains. You have to buy low to sell high.
As markets incessantly gyrate, the only constant is the fact that they have always gone up over the long haul. These are long-term investments. If you try to trade the market during these volatile times, you will most certainly get crushed. The risk reward ratio for long position in these stocks is currently favorable. The only caveat is now may not be the best time to start a position in all of them based on stock-specific factors.
Use this information as a starting point for your own due diligence and research methods before determining whether or not to buy or sell a security. You must determine if these investments are suitable for you. If you choose to start a position in any stock, I suggest layering in a quarter at a time to reduce risk and set a 5% trailing stop loss in order to minimize losses further if you wish.