If you're interested in finding stocks that may be undervalued, here are some ideas to get started on your search.
Based on the theoretical assumption that if P/E is equal to a constant K, growth in EPS estimates should be matched by proportionate growth in price. When they don't match up, a mispricing may have occurred.
We ran a screen on companies of the S&P 500 reporting fourth quarter earnings next week for those that appear undervalued relative to this mismatch between growth in EPS and price.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.
We also created a price-weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 index over the last month. To access a complete analysis of this list's recent performance, click here.
Do you think these stocks will report earnings surprises next week? Use this list as a starting point for your own analysis.
List sorted by earnings date.
1. Watson Pharmaceuticals Inc. (WPI): Engages in the development, manufacturing, marketing, sale, and distribution of generic and brand pharmaceutical products focused on urology and women's health in the United States, western Europe, Canada, Australasia, South America, and South Africa. Earnings to be released on 02/14. The EPS estimate for the company's current year increased from 4.61 to 4.74 over the last 30 days, an increase of 2.82%. This increase came during a time when the stock price changed by -6.42% (from 61.99 to 58.01 over the last 30 days).
2. Dean Foods Co. (NYSE:DF): Operates as a food and beverage company in the United States. Earnings to be released on 02/15. The EPS estimate for the company's current year increased from 0.72 to 0.73 over the last 30 days, an increase of 1.39%. This increase came during a time when the stock price changed by 0.37% (from 10.67 to 10.71 over the last 30 days).
3. Nordstrom Inc. (NYSE:JWN): Offers apparel, shoes, cosmetics, and accessories for women, men, and children in the United States. Earnings to be released on 02/16. The EPS estimate for the company's current year increased from 3.12 to 3.13 over the last 30 days, an increase of 0.32%. This increase came during a time when the stock price changed by -0.67% (from 50.61 to 50.27 over the last 30 days).
*EPS data sourced from Yahoo! Finance, all other data sourced from Finviz.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.