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WFD And HALL: Fresh Breakouts In Beaten Down Stocks

|Includes: HALL, Westfield Financial, Inc. (WFD)

Fundamentally strong stocks tend to breakout after technical corrections and smart money often exploits the opportunity. Investors can take a look at Westfield Financial Inc. (NASDAQ: WFD) and Hallmark Financial Services Inc. (NASDAQ: HALL), which have witnessed fresh breakouts recently after seeing substantial price corrections.

Massachusetts based Westfield Financial is a holding company for the Westfield Bank, a community bank. Over the last year, the stock largely moved into a tight range and witnessed a correction in recent months which pulled down the stock from $7.8 per share in early March to $7 per share towards the end of April. The stock has started moving up again after the company announced its first quarter results. Although the company said its top line dropped 3 percent to $10 million and net income dropped 7.5 percent to $1.65 million, earnings per share (NYSEARCA:EPS) went up to 9 cents thanks to its active share repurchases. In March, Westfield Financial had announced a new stock repurchase program to buy back close to 2 million shares, representing nearly 10 percent of its outstanding common stock.

As a community based bank, Westfield Financial has not got a scalable business model and its best shot is to make optimum use of the available customers and capital. Thankfully, the management is doing well on this front with the share buy-back program. The stock is still undervalued as it trades below its book value and can see a sustained rally.

It is no surprise that Hallmark Financial Services is another financial player in this category as valuations of financial companies can fluctuate vigorously. Shares of this Texas based insurance company are available at levels close to where they were at the beginning of the year. However, this was after the stock ran up 9 percent last week following first quarter results announcements. The company reported quarterly profit of $4.5 million, up from $1.7 million in the same period last year. The sharp increase in profitability was despite a dip in the top line from $93.1 million in Q1 2013 to $87.1 million.

In terms of valuations, the stock trades at a hefty 27 percent discount to its book value. It has a debt equity ratio of just 0.24 which makes the cash of $7.36 per share particularly attractive. Throw in the high insider ownership and the aggressive buying activity and we have a solid business available at a forward price earnings ratio of just 17.