4 Contrarian Picks Now Trading at a Discount

Includes: CSH, HUM, IOSP, SGY
by: Brian Nichols

The market finished in the green Wednesday, snapping an eight day losing streak that began with the three major indices seeing a loss of 1%. With economic uncertainty, days like these should be expected. Investors are paying attention to local and world news then making investment decisions off these developments. At some point, our economy should recover and we will see consistent gains. There are many companies that have seen losses during this time of economical uncertainty but have seen an improvement within their operations. The following companies are priced at what I consider to be a discount.

Humana Inc. (NYSE:HUM) has seen one year gains in excess of 45%. The company has seen revenue, gross profit, EPS, and assets all increase year over year during the last three years. On August 1st the company announced a 35% increase in net income during the second quarter of 2011. Analyst expected adjusted income of $2.05 per share yet the company posted $2.50. Revenue increased and the company raised full year EPS estimates.

With the company earning more in profit, creating additional revenue, and assuring investors of the future, you would believe the stock would increase. At the opening bell on August 1st, the stock opened higher. However, Humana has lost 7% of its value since then. Over the last month the stock has seen loss greater than 14% and is now trading with a P/E of only 9.64. The stock has continued to increase in almost every financial category, yet is experiencing a loss in price. This action is a perfect example of the market's panic affecting a stock. There is no reason to believe that Humana will stay at these levels once the market begins to recover. I would purchase this stock and expect large returns as the company continues to grow.

Innospec (NASDAQ:IOSP) has seen gains in excess of 150% over the last 52 weeks. The company will release quarterly results on August 8th after the market closes. In 2010, the company saw its business improve as revenue and net income improved over a four year period. The stock has lost more than 14% of its worth over the last month and is trading with a P/E of only 8.36. The company has worked hard at rebuilding its tarnished reputation after a bribery scandal that cost it millions. Innospec has since published development reports which include its contributions to education, mentoring, fundraising, and financial assistance.

The company has made great progress during the last year within its business. With a market cap of only $701.89 million and P/E of 8.36 , there is a large amount of growth that could take place. During this last year, the company has given great returns and I expect more of the same after earnings are released. Q2 of 2010 reported the lowest EPS of the last five quarters. Therefore in a year over year comparison, I expect Innospec will post an increase in earnings by its largest margin yet. The company has demonstrated consistent gains and there is no reason to believe it will not post better numbers. With the stock already low as the result of a market sell-off, this should reward investors with a nice return.

Cash America International (NYSE:CSH) has seen yearly gains in excess of 65%. The company released second quarter results on July 21st, announcing net income gains of 29% and total revenue up 14% year over year. Since July 21st, the stock has lost more than 7% of its total value and is now trading with a P/E under 14.

Cash America released a solid financial report with an increase in guidance for both full year and third quarter reports, yet the stock is trading down. With a 7% discount, $55 would be a perfect purchase price. The company has seen five years of increased revenue, gross profit, net income, EPS, and assets. If 2011 continues and guidance, is met Cash America will have six years of improved finances. The stock trades in a weak financial sector that is showing improvement every quarter. I believe that this stock will see incredible gains within the next six months and prove to be a solid investment.

Stone Energy (NYSE:SGY) has posted gains of over 150% in one year. The company released second quarter earnings that beat expectations for the third quarter in a row. Revenue rose 41% and EPS beat estimates by .17. The stock rose 2.1% following the release of the earnings report which showed significant improvement.

Since Friday July 22nd, the stock has decreased 7.5% with no significant news other than a great earnings report. The company has seen revenue decrease and net income increase for three straight years. This shows an improvement in overall operations, yet a business that is declining. The most recent earnings report along with Q1 have both posted an increase in revenue year over year. This means the company is on track to deliver its first year of increased revenue since 2008. With the company being more profitable, it appears to be a good opportunity to take advantage of the recent demand in business. With a P/E of only 13.80 and better financials I expect the stock to see large gains in the coming months.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in HUM, SGY over the next 72 hours.

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