Seeking Alpha
Value, growth, long-term horizon, medium-term horizon
Profile| Send Message|
( followers)  

Do you consider yourself a contrarian investor? Perhaps you have an affinity for stocks in the low price range? If so, we ran a couple screens you may find interesting.

We began by screening for stocks trading between $1-$5 a share that have recently underperformed the market.

We measure "losing streaks" using the number of days in which the stock beat the S&P 500 over the last month and the number of days in which it underperformed the S&P 500. We then compared the longest winning streak in days over the last month to the longest losing streak, and found those stocks with the lowest ratios, indicating these stocks have been underperforming the S&P 500.

Next we looked for signs that their losing streaks would soon be over using short seller activity. Specifically, we looked for a decrease in shares shorted month over month (short covering).

Short sellers seem to think these stocks will see a reversal. Do you agree?

1. MEMC Electronic Materials Inc. (WFR): Engages in the development, manufacture, and sale of silicon wafers for the semiconductor industry worldwide. Market cap at $565.75M, most recent closing price at $2.45.

Shares shorted have decreased from 26.31M to 22.49M over the last month, a decrease which represents about 1.75% of the company's float of 217.83M shares. Days to cover ratio at 4.1 days.

The stock's average daily alpha vs. the S&P500 index stands at -0.99% (measured close to close, over the last month). During this period, the longest losing streak lasted 9 days (i.e. the stock's daily returns underperformed the S&P 500 for 9 consecutive days). The longest winning streak lasted 3 days (i.e. a win streak / losing streak ratio of 0.33).

2. Array BioPharma, Inc. (NASDAQ:ARRY): Focuses on the discovery, development, and commercialization of small molecule drugs to treat patients afflicted with cancer and inflammatory diseases in North America, Europe, and the Asia Pacific. Market cap at $413.62M, most recent closing price at $4.49.

Shares shorted have decreased from 3.41M to 2.64M over the last month, a decrease which represents about 1.12% of the company's float of 69.02M shares. Days to cover ratio at 2.57 days.

The stock's average daily alpha vs. the S&P500 index stands at -1.11% (measured close to close, over the last month). During this period, the longest losing streak lasted 4 days (i.e. the stock's daily returns underperformed the S&P 500 for 4 consecutive days). The longest winning streak lasted 2 days (i.e. a win streak / losing streak ratio of 0.5).

3. Atmel Corporation (NASDAQ:ATML): Designs, develops, manufactures, and markets a range of semiconductor integrated circuit (IC) products. Market cap at $2.03B, most recent closing price at $4.62.

Shares shorted have decreased from 27.37M to 22.92M over the last month, a decrease which represents about 1.04% of the company's float of 426.54M shares. Days to cover ratio at 2.87 days.

The stock's average daily alpha vs. the S&P500 index stands at -1.43% (measured close to close, over the last month). During this period, the longest losing streak lasted 5 days (i.e. the stock's daily returns underperformed the S&P 500 for 5 consecutive days). The longest winning streak lasted 2 days (i.e. a win streak / losing streak ratio of 0.4).

Compare performance of these three stocks over the past year (click to enlarge images):

But wait, there's more!

From the universe of small cap stocks with share price between $1-$5, we took another route to find candidates with upside potential.

These stocks have received very bullish attention from both short sellers (significant short covering month over month) and institutional buyers, such as hedge fund managers (significant net purchases in the current quarter). Both of these investor groups are credited with being more sophisticated than average Main Street investors.

We were left with only 2 names. Both have seen incredible upside in the past year. The question only remains, can these namest go even higher? Investors seem to think so.

1. Rentech, Inc. (NASDAQ:RTK): Provides alternative and clean energy solutions; and manufactures and sells nitrogen fertilizer products. Market cap at $545.28M, most recent closing price at $2.48. The stock has a 1-year return of 102.5%

Net institutional purchases in the current quarter at 12.1M shares, which represents about 6.06% of the company's float of 199.66M shares.

Shares shorted have decreased from 15.67M to 11.92M over the last month, a decrease which represents about 1.88% of the company's float of 199.66M shares. Days to cover ratio at 4.96 days.

2. Hovnanian Enterprises Inc. (NYSE:HOV): Engages in homebuilding and financial services businesses in the United States. Market cap at $515.22M, most recent closing price at $4.38. The stock has a 1-year return of 213.8%

Net institutional purchases in the current quarter at 21.2M shares, which represents about 20.09% of the company's float of 105.54M shares.

Shares shorted have decreased from 20.44M to 17.50M over the last month, a decrease which represents about 3.76% of the company's float of 78.13M shares. Days to cover ratio at 4.85 days.

Compare performance relative to the S&P 500 index:

Price and Short data sourced from Yahoo! Finance, institutional data from Fidelity. All other data sourced from Finviz. Free charting tools from Kapitall.

Written by Rebecca Lipman.

Disclaimer: Kapitall is a team of analysts. This article was written by Rebecca Lipman, one of our writers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.

Source: 5 Small Cap Stocks Under $5 With Short Covering