The five stocks covered in this article spiked by an average of 7% last week. The market reacted positively to several macro news events. The news China is investing billions in infrastructure to stimulate their economy, coupled with the positive steps taken by the ECB and the increasing probability of the Fed implementing another round of QE due to the poor jobs report, has sparked a rally.
Moreover, 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 a safety net of further monetary stimulus which bodes well for stocks.
Finally, these stocks are all turnaround stories at various points in the process. They all have catalysts for future growth. The question is, is now the time to buy?
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 19% below their 52-week highs and have an average upside potential of 15% based on analysts' mean price targets. Furthermore, most of 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 Monday's performance for the stocks. The following charts are provided by Finviz.com.
Bank of America Corporation (BAC)
BAC spiked 7.52% last week. The company is trading 15% below its 52-week high and has 9% potential upside based on the consensus mean target price of $9.32 for the company. BAC was trading Monday for $8.58, down 2.5% for the day.
Bank of America was trading for $5.26 the day of my initial recommendation in December. The company is now trading up over 50%. In December of 2011, the U.S. banks were severely beaten down due to eurozone sovereign debt default risk. Now that the risk has diminished, banks stocks should continue to rally.
Fundamentally, BAC has several positives. BAC's projected EPS growth rate for next year is 65.45%. The company has a forward P/E of 9.43. BAC is trading for less than half of book value. The company has a PEG ratio of 1.30 and a net profit margin of 11.62%. BAC insider ownership has increased by 66.39% over the past six months. There is an old saying regarding insiders-- they have many reasons to sell but only one reason to buy, the stock is going up.
I am long BAC. The coveted golden cross was just achieved by BAC. 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 and the stock still has positive catalysts. It gave some back Monday, but this was a purely technical move based on the significant gain the prior day.
Citigroup, Inc. (C)
Citigroup spiked 7.14% last week. The company is down approximately fifteen fold from its 2007 high of a split-adjusted $500 per share. The company is trading 17% below its 52-week high and has 24% upside potential based on the analysts' mean target price of $39.46 for the company. Citigroup was trading Monday for $31.83, down almost 1% for the day.
Fundamentally, Citigroup has several positives. The company has a forward P/E of 7.07. Citigroup is trading for approximately half of book value. The company has a PEG ratio of 1 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 broken out of a long-term downtrend. The 20-day SMA crossed above the 50-day SMA in early August and the stock just breached resistance at the 200-day sma, which is highly bullish. The stock has posted higher highs and higher lows since mid-July. The macro environment seems to be improving for the banks in general. This may be the reason for the U.S. bank melt up. The stock is a buy.
Ford Motor Co. (F)
Ford spiked 8.34% last week. The company is down approximately one fold from its 2010 high of $18 per share. The company is trading 22% below its 52-week high and has 34% upside based on the analysts' mean target price of $13.50 for the company. Ford was trading Monday for $10.11, down slightly for the day.
Fundamentally, Ford has several positives. Ford's projected EPS growth rate for next year is 18.25%. The company has a forward P/E of 6.79. Ford is trading for 8.36 times free cash flow and slightly over two times book value. The company pays a dividend with a yield of 1.98% and has a PEG ratio of 0.31 and a net profit margin of 13.28%.
Technically, Ford has completed a short term trend reversal. The stock was posting higher highs and higher lows since the start of August. Recently the stock has spiked due to strong August car sales. Ford is another long-term buy here. The risk/reward ratio favors long trades. Nine dollars has proven to be substantial support for the stock.
Regions Financial Corp. (RF)
Regions spiked 6.61% last week. The company is down approximately threefold from its 2007 high of a $32 per share. The company is trading at its 52-week high and has 3% upside based on the analysts' mean target price of $7.65 for the company. Regions was trading Monday for $7.42, up slightly for the day.
Fundamentally, Regions has many positives. Regions trades for 4 times free cash flow. The company has a forward P/E of 9.28. EPS is rising exponentially quarter over quarter. The company is trading for approximately three quarters of book value.
Regions was trading for $3.96 the day of my initial recommendation in May. The company is now trading up 87% at $7.42. The stock looks priced for perfection to me at this point.
Regions' positive catalysts are still in place and its technical and fundamental states are positive. I still like the stock, yet would wait for a pullback closer to the 200 day SMA prior to starting a position.
Sprint Nextel Corp. (S)
Sprint spiked 6.19% last week. The company is down over threefold from its 2007 high of a $22 per share. The company is trading 6% below its 52-week high and has no upside based on the analysts' mean target price of $5.15 for the company. Sprint was trading Monday for $5.15, up over 2% for the day.
The company is trading 10% below its 52 week high and 2% above the consensus mean target price of $4.90 for the company. Sprint was trading Thursday for $4.96, up slightly for the day. Fundamentally, Sprint has some positives. Sprint is trading for 1.6 times book value and only 43% of sales. EPS next year is expected to rise by 43%.
Sprint was trading for $3.31 on the day of my recommendation. The company is now trading up over 50%. The stock has been on a tear since mid-April. I was waiting for a pullback to get back on board, but the stock may not cooperate. After the recent price action, I like the stock here.
The Bottom Line
These stocks have upcoming catalysts and strong stories that will move share prices up significantly. Some have had significant runs already. Take your time in building a position by layering into them. This will help to reduce risk. The stocks hitting 52 week highs are usually doing so for good reason. Set a stop loss order if you are concerned that the stock may not hold the gains.
The markets quickly reacted to the news out of China, Europe and the U.S. reversing trend and going positive last week. The small pullback and consolidation we had on Monday is to be expected. Use the pullback to pick up shares in your favorite stocks.
Disclosure: I am long BAC.
Additional disclosure: This is not an endorsement to buy or sell securities. Investing in securities carries with it very high risks. The information contained within this article for informational purposes only and is subject to change at any time. Do your own due diligence and consult with a licensed professional before making any investment decisions.