The markets have roiled drastically over the last few years. After being beaten down to multi-year lows due to the Eurozone debt debacle and other macro-economic and geopolitical issues, they have seen resurgence in 2012. The stocks covered in this article have risen more than 17% on average in the third quarter alone. SIRIUS XM Radio Inc. (SIRI) is up the most with a 31% gain while Ford Motor Co. (F) is up the least with a 4.41% gain for the quarter.
I posit this is just the beginning for these stocks which may present excellent buying opportunities at current levels. Even though these stocks have rallied, they are still trading near multi-year lows and considerably off their multi-year highs. Citigroup (C) is trading over 14 fold below its split adjusted high of $500 per share in 2007 while Ford has the least trading approximately one fold below its 2011 high of $18 per share. With these stocks trading many fold below their all-time highs, the potential for them to increase in value as global markets gain their footing is likely. Even if many of them did increase substantially from current levels, most would still be vastly below their all-time highs.
In the following sections we will perform a review of the fundamental and technical state of each company to determine if we should stay with the position, sell out or simply manage the position by taking profits. The following table depicts summary statistics and Wednesday's performance for the stocks. The following charts are provided by Finviz.com.
Bank of America Corporation (BAC)
I am long BAC. BAC is up 16.65% for the quarter, yet is still trading four fold below its 2007 high of $45 per share. The company is trading 10% below its 52-week high and has 3% potential upside based on a consensus mean target price of $9.42 for the company. BAC was trading Wednesday at $9.11, up over 2% for the day.
Fundamentally, BAC has several positives. BAC insider ownership has increased by 66.39% over the past six months. The company has a forward P/E of 10.01. BAC is trading for 6.94 times free cash flow. BAC has a net profit margin of 11.62% and a PEG ratio of 1.38. BAC is trading for approximately 42% of book value. EPS next year is expected to rise by 69% and the company pays a dividend with a yield of .44%.
Technically, BAC is exhibiting positive characteristics. The stock broke out of a descending triangle to the upside at the beginning of August and fulfilled the coveted golden cross where the 50-day sma crosses above the 200-day sma. This was extremely bullish. I went long BAC at this time. I have found the golden cross to be a key metric in picking winners.
The stock is still trading below 50% of its book value and the fundamental and technical picture is positive. The bank recently settled a lawsuit that should significantly benefit current shareholders in the long run. I like the stock here.
Citigroup is up 26.95% for the quarter, yet is still trading 14 fold below its 2007 split adjusted high of $500 per share. The company is trading 11% below its 52-week high and has 131% potential upside based on a consensus mean target price of $78.68 for the company. Citigroup was trading Wednesday at $34.06, up over 2% for the day.
Fundamentally, Citigroup has several positives. The company has a forward P/E of 7.57. Citigroup is trading for approximately half of book value. Citigroup insider ownership has increased by 20.56% over the past six months. The company has a PEG ratio of 1.07 and a net profit margin of 14.19%.
Technically, the stock looks great. It is in a well-defined uptrend. The stock has posted higher highs and higher lows since mid-July. It has been on fire so the recent period of back and filling was completely logical. If you look at the chart, Citigroup just fulfilled the golden cross where the 50-day sma crosses above the 200-day sma. This is precisely the time to buy the stock. Just like BAC, Citigroup seems to have shirked off the bad news and is heading higher. The stock is still a buy here.
Ford Motor Co.
Ford is up nearly 5% in the past quarter. The company is trading 23% below its 52-week high and has 36% upside based on the analysts' consensus mean target price of $13.50 for the company. Ford was trading Wednesday for $9.94, up 1.5% for the day.
Fundamentally, Ford has several positives. The company has a forward P/E of 6.72. Ford is trading for 8.22 times free cash flow and 2.24 times book value. EPS next year is expected to rise by 18%. The company pays a dividend with a yield of 2.01% and has a PEG ratio of 0.30 and a net profit margin of 13.47%. Ford insider ownership has increased by 9.41% over the past six months.
Technically, Ford looks good, but has been weak as of late. The stock is up over 10% since my last recommendation to buy at the $9 low. The stock has posted higher highs and higher lows since the start of August. The stock is trading on par with the June highs. The stock failed to breech the $10.50 which was disappointing.
Ford is one of my favorite stocks. Nevertheless, the recent news that sales were flat due to poor sales of trucks leads me to believe they will have another disappointing earnings report. I would avoid the stock until after the earnings call.
SandRidge Energy, Inc. (SD)
SandRidge is up 7% over the last quarter, yet 10 fold below its 2008 high of $70. The company is trading 23% below its 52-week high and has 37% upside based on the consensus mean target price of $9.61 for the company. SandRidge was trading Wednesday for $7.00, down slightly for the day.
Fundamentally, SandRidge has several positives. SandRidge is trading 1.21 times book value. SandRidge has a net profit margin of 59.29%. EPS next year is expected to rise by 18%. Quarter-over-quarter sales and EPS growth are up 31% and 265%, respectively.
Technically, the stock has been in a well-defined trading range between $6 and $7 for the past few months. The stock broke out above the $7 mark and 200 day SMA at $7.20, but pulled back recently due to a transitory weakness in the oil markets.
Tom Ward at SandRidge has not been given enough credit for the tremendous job he is doing turning this company into a profit machine. SandRidge has made the investments and over the next three years they should capitalize on them greatly. The stock is a buy here.
SIRIUS XM Radio Inc.
I am long SIRIUS. SIRIUS is up 30.62% over the last quarter, yet three fold below its 2005 high of $9. The company is trading 2% above its 52-week high and has 3% upside potential based on consensus mean target price of $2.80 for the company. SIRIUS was trading Wednesday for $2.73, up 4% for the day.
Fundamentally, SIRIUS has several positives. SIRIUS has a forward P/E of 25 and trades for 28 times free cash flow. EPS is expected to rise by 25% over the next five years. Quarter over quarter EPS is up tremendously. SIRIUS' TTM ROE is 152% and the company's net profit margin is 107%.
Technically, the stock looks strong. The stock achieved the golden cross about one month ago. This indicator has proven to be extremely bullish. The stock has just made another 52 week high.
Bank of America recently initiated coverage on SIRI with a Buy rating causing the stock to spike over the last two days. The recent news of strong car sales should keep the stock moving higher. I'm staying long.
The Bottom Line
Sometimes a bargain is a bargain and sometimes it is not. Starting off with stocks that have strong growth prospects and solid fundamentals takes some of the downside risk out of the equation. Nevertheless, you must always dig deeper to see what the future may hold. Everything is not always as it appears.
Most of these stocks are in the process of rebounding off a bottom. The difference is Ford seems to be facing headwinds rather than catalysts. Furthermore, the technical state is not as strong as I would like to see it. Nevertheless, I believe Ford will prevail in the long run, but I've been burned by them for the last three quarters and do not recommend buying into the stock prior to the next earnings call.
If you choose to start a position in any stock, I suggest layering in a quarter at a time at a minimum to reduce risk and setting a 5% trailing stop loss to minimize losses even further if you wish.
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.