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I have searched for profitable companies with a very strong growth prospects that are technically oversold at the moment. Those stocks have a better than average chance of beating the market.

I have elaborated a screening method, which shows stock candidates following these lines. Nonetheless, the screening method should only serve as a basis for further research.

The screen's formula requires all stocks to comply with all following demands:

  1. The stock is included in the Russell 3000 index. Russell Investment explanation: "The Russell 3000 Index measures the performance of the largest 3000 U.S. companies representing approximately 98% of the investible U.S. equity market. The Russell 3000 Index is constructed to provide a comprehensive, unbiased, and stable barometer of the broad market and is completely reconstituted annually to ensure new and growing equities are reflected."
  2. Earnings growth estimates for the next 5 years (per annum) is greater than 15%.
  3. The PEG ratio is less than 1.30.
  4. RSI (14 days) is above 30 and RSI (14 days) was below 30 in one of the last 3 days. (The Relative Strength Index [RSI] is an oscillator that measures current price strength in relation to previous prices. The classic way to interpret RSI is to look for oversold levels below 30 and overbought levels above 70. When the RSI crosses above the oversold line (30) it is considered buy signal).

I used Portfolio123's powerful free screener to perform the search. After running this screen on November 11, 2012, I obtained as results the 6 following stocks:

Data: finviz.com

HFF, Inc. (NYSE:HF)

HFF, Inc. provides commercial real estate and capital markets services to users and providers of capital in the commercial real estate industry in the United States.

HFF has a low trailing P/E of 13.11 and a very low forward P/E of 10.40; the PEG ratio is very low at 0.87. The average annual earnings growth estimates for the next 5 years is quite high at 15%. The company is trading 22.6% below its 52-week high and has 37% upside potential based on the consensus mean target price of $18.00. The two analysts covering the stock recommend the stock; one rates it a strong buy and the other rates it a buy. In my opinion the HF stock is a good investment right now.

Chart: finviz.com

IAC/InterActiveCorp (NASDAQ:IACI)

IAC/InterActiveCorp engages in the Internet business in the United States and internationally.

IAC/InterActiveCorp has a very low debt (total debt to equity is only 0.05) and its forward P/E is very low at 11.63 and it has a low PEG ratio of 1.09. The price to free cash flow for the trailing 12 months is very low at 11.53. The average annual earnings growth for the past five years has been very high at 18.52%, and the average annual earnings growth estimate for the next five years is even higher at 22.13%. The forward annual dividend yield is 2.18% and the payout ratio is 52.4%. The company is trading 20.7% below its 52-week high and has 38% upside potential based on the consensus mean target price of $60.87. Among the seventeen analysts covering the stock, four rate it a strong buy, seven rate it a buy and six rate it a hold. All these factors make the stock quite attractive.

Chart: finviz.com

KMG Chemicals Inc. (NYSE:KMG)

KMG Chemicals, Inc., through its subsidiaries, engages in the manufacture, formulation, and distribution of specialty chemicals.

KMG Chemicals has a low debt (total debt to equity is only 0.22) and the price to sales ratio is very low at 0.71. The company has a low trailing P/E of 13.75 and a very low forward P/E of 10.27; the PEG ratio is also very low at 0.81. The price to free cash flow for the trailing 12 months is very low at 10.34 and the average annual earnings growth estimates for the next 5 years is quite high at 17%.. The company is trading 13.4% below its 52-week high and has 29% upside potential based on the consensus mean target price of $22.00. The two analysts covering the stock recommend the stock; one rates it a strong buy and the other rates it a buy. On October 12, KMG Chemicals reported its financial results; KMG Chemicals met expectations on revenues and beat expectations on earnings per share. The KMG stock looks quite attractive.

Chart: finviz.com

Perry Ellis International Inc. (NASDAQ:PERY)

Perry Ellis International, Inc. engages in designing, sourcing, marketing, and licensing apparel products in the United States and internationally.

Perry Ellis has a low debt (total debt to equity is 0.46) its forward P/E is very low at 8.80 and it has a low PEG ratio of 1.25. The price to free cash flow for the trailing 12 months is very low at 5.47 and the average annual earnings growth estimate for the next five years is quite high at 15.35%. The price to sales ratio is very low at 0.31 and the price to book value is also very low at 0.80. The company is trading 22.6% below its 52-week high and has 25% upside potential based on the consensus mean target price of $23.57. Perry Ellis International is scheduled to report its Q3 2012 financial results on November 15, and the results would probably affect the short-term stock price.

Chart: finviz.com

POZEN Inc. (NASDAQ:POZN)

POZEN Inc., a pharmaceutical company, develops products for the treatment of acute and chronic pain, and other pain-related conditions in the United States.

POZEN Inc. has no debt at all and it has a very low PEG ratio of 0.14. The price to free cash flow for the trailing 12 months is very low at 3.94. The average annual earnings growth for the past five years has been extremely high at 74.08%, and the average annual earnings growth estimate for the next five years is also very high at 30%. The company is trading 28.9% below its 52-week high and has 53% upside potential based on the consensus mean target price of $8.81. Among the five analysts covering the stock, one rates it a strong buy, two rate it a buy and two rate it a hold. The POZN stock seems to be a good investment right now.

Chart: finviz.com

Travelzoo Inc. (NASDAQ:TZOO)

Travelzoo Inc. is an Internet media company which publishes travel and entertainment deals from travel and entertainment companies, and local businesses in North America and Europe.

Travelzoo has no debt at all. The company has a low trailing P/E of 13.58 and a very low forward P/E of 13.17; the PEG ratio is very low at 0.39. The price to free cash flow for the trailing 12 months is very low at 9.90 and the average annual earnings growth estimates for the next 5 years is very high at 35%. The company is trading 44.3% below its 52-week high and has 16% upside potential based on the consensus mean target price of $20.50. On October 25, Travelzoo reported its Q3 financial results; the company reported revenue of $35.4 million, down 8% year-over-year and net income of $3.4 million, down 42% year-over-year. Despite the disappointing Q3 results, I think the TZOO stock still has a room to move up.

Chart: finviz.com

Source: 6 Oversold High-Growth Stocks Ready To Bounce