Whenever I am up big or substantially down, I know this is a signal to manage the position, or at the very least, perform a review to determine if any action is required. The following five stocks are up substantially since my initial recommendations to review based on significant moves in the stock price. The five stocks are up an average of 38% since my initial recommendations to buy. Bank of America (BAC) is up the most-- 91%-- since my recommendation to buy the stock last December.
Reviewing my positions on a monthly basis or when the stocks have significant moves is a part of my usual modus operandi. If a stock has a large percentage move it may need to be managed in order to maintain the proper portfolio weightings.
Moreover, by going back and seeing why you were right or wrong regarding a stock better prepares you to recognize the next opportunity to buy or pitfall to avoid. We can look back and identify what catalyst really produced results, take this information, look for similar scenarios, and attempt to replicate the results.
These stocks were originally on my radar because they had strong fundamental data and some beat recent earnings estimates. Certain stocks are trading at an extreme discount to the historical valuations based on an unprecedented downturn in global growth.
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 Monday's performance for the stocks. The following charts are provided by Finviz.com.
Bank of America Corporation
BAC is up 91% since my recommendation to buy it in December. The company is trading 3% below its 52-week high and has 3% upside potential based on the analysts' mean target price of $10.00 for the company. BAC was trading Monday at $9.72, down over 1% for the day.
Fundamentally, BAC has several positives. The company has a forward P/E of 10.26. BAC has a net profit margin of 10.78%. It is trading for approximately 45% of book value. EPS next year is expected to rise by 134.15%. BAC insider ownership has increased by 66% 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 in April. 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 into the stock. The stock recently breached the $9.50 high mark set in October, confirming the uptrend. The stock is a buy here.
Citigroup, Inc. (C)
Citigroup is up 45% since my recommendation to buy it in December. The company is down nearly sixteen fold from its 2007 high of a split-adjusted $500 per share. The company is trading 4% below its 52-week high and has 14% upside potential based on the analysts' mean target price of $42.48 for the company. Citigroup was trading Monday for $37.30, down 1% for the day.
Fundamentally, Citigroup has several positives. The company has a forward P/E of 8.17. Citigroup is trading for approximately half of book value. The company has a PEG ratio of 1.50 and a net profit margin of 10.95%. Citigroup insider ownership has increased by 20.55% over the past six months. Technically, the stock has been in a well-defined uptrend for the past quarter. The golden cross was recently achieved at the beginning of October.
The bank beat earnings estimates and then had its CEO Vikram Pandit step down following a clash with the board over strategy and performance, according to an article in the Wall Street Journal. Citigroup named Michael Corbat, a Citigroup veteran, as Mr. Pandit's successor. I think the fresh blood will serve Citigroup well. I like the stock long term.
Ford Motor Co. (F)
Ford is up 18% since my recommendation to buy it in August. The company is down slightly less than one fold from its 2010 high of $18 per share. The company is trading 13% below its 52-week high and has 25% upside based on the analysts' mean target price of $13.93 for the company. Ford was trading Monday for $11.29, up over 1% for the day.
Fundamentally, Ford has several positives. The company has a forward P/E of 7.70. Ford is trading for 9.24 times free cash flow and two and half times book value. EPS next year is expected to rise by 13%. The company pays a dividend with a yield of 1.79% and has a PEG ratio of 0.48 and a net profit margin of 13.28%.
Technically, Ford is currently overbought due to an earnings beat. The stock has been in a solid uptrend since for the last quarter. The stock has posted higher highs and higher lows since the start of August. As the stock has spiked on an earnings beat, I would wait a few days for the dust to settle prior to starting a position as the short term traders take profits and move on. Mulally is staying around till 2014, sales and profits are up and the recent storm has not affected production. The stock remains a buy long-term.
Sprint Nextel Corp. (S)
Sprint is up 18% since my last recommendation to buy it in August. The company is down fourfold from its 2005 high of $24 per share. The company is trading 6% below its 52-week high and has 14% upside based on the analysts' mean target price of $6.49 for the company. Sprint was trading for $5.64 on Monday, down 1% for the day.
Fundamentally, Sprint has some positives. Sprint is trading for 2 times book value and only 50% of sales. EPS next year is expected to rise by 44.60%. Technically, Sprint is neither overbought 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.
Sprint is the only company that offers the Apple (AAPL) iPhone with unlimited data, which is driving subscriber growth. The company is cleaning up the balance sheet and executing well on operational objectives. Sprint recently received an offer from Softbank to buy a majority stake in the company. I see this as a big positive if the deal goes through. It will bring in much needed capital for Sprint. I like the stock here.
Sirius XM Radio Inc. (SIRI)
The company is down over twofold from its 2005 high of $8 per share. The company is trading 3% below its 52-week high, and has 8% upside potential based on the analysts' mean target price of $3.10. Sirius stock was trading for $2.87 Monday, down over 1% for the day.
Fundamentally, this stock has several positives. SIRI has a forward P/E of 29, and trades for 24 times free cash flow. EPS for the next five years is expected to rise by 28%. Quarter-over-quarter sales are up 13%. SIRI's TTM ROE is 142%, and the company's net profit margin is 103%.
Technically, Sirius stock 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 sold my position prior to earnings and after the announcement Mel was leaving the company. The company reported solid results for the quarter but the stock didn't really move. I am still on the sidelines at this time. If the stock pulls back to the 50-day SMA I may start a position.
The Bottom Line
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 quarter. On the other hand, the fact that these stocks are down significantly from their multi-year highs in no way assures you of profits. Some companies have right sized themselves into entirely different animals.
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 a long position in these stocks is currently favorable. The only caveat is that now may not be the best time to start a position in all of them based on stock-specific factors.
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.