Harry Domash's Winning Investing

Underpriced Stocks

Given recent market action, you’ll have no problem finding overpriced stocks. But how about going the other way? That is finding currently underpriced stocks.

More than 1,900 U.S.-based stocks recently traded below $10 per share.  Unfortuneately, most cheap stocks got that way for good reasons and are unlikely to move up much in price. However, with so many to choose from, there’s bound to be a few overlooked bargains in the group.

How can you find them? In the end, the market rewards growth, particularly revenue and earnings growth, more than any other factors. So the trick is to pinpoint stocks likely to outperform by those measures. If you do find such stocks trading for under $10 per share, it wouldn’t be unreasonable to expect a share price double if and when the market takes off.

Should they exist, here’s how you can use the free and user-friendly Finviz stock screening program to find them.

Set Up Screener

Start at the screener’s home page (finviz.com) and select “Screener” in the bar near the page top. Finviz uses “filters” to define the screening search parameters. Select “All” on the Filters bar to see the available filters. Then use the dropdown menu next to the name of each filter that you want to use to set up your screen.

Define Screening Parameters

Start by specifying “USA” for Country and “under $10” for “Price” to limit your screening universe to U.S.-based stocks trading under $10.

Next, use analyst forecasts to limit your list to stocks expected to grow earnings at least 10% this year (EPS growth this year) and “Over 15%” for “EPS growth next year.”

Long-term, earnings growth requires sales growth. Since Finviz doesn’t have sales growth forecasts, require “Over 15%” for the last quarter’s reported sales growth, which is labeled “sales growth quarter over quarter.”

Because very small firms are risky bets, use the “Market Cap” filter to require a minimum $300 million market-capitalization (value of outstanding shares) by selecting “+ Small.”

Rather than doing the analysis yourself, piggyback on the efforts of the pros by requiring Analyst Recommendations of “Buy or better”

Institutions are mutual funds and other big investors. Avoid stocks that these wired-in players don’t like. Do that by using the “Institutional Ownership” filter and specifying “over 50%’ of outstanding shares.”

Stocks that have already started moving up in price are your best bets to continue their winning ways. Use the “200-day Simple Moving Average” filter and specify “Price above SMA” to limit your list to already uptrending stocks.

“Return on Equity” compares “Net Income” to “Shareholders Equity.” You’ll always do best by avoiding unprofitable stocks. Do that by specifying “Positive” for ”Return on Equity”   

Nine Underpriced Stocks

My screen turned up nine stocks when I ran it:

* ADMA Biologics (ADMA)

* Accuray Inc. (ARAY)

* Cantaloupe, Inc. (CTLP)

* Global Business Travel Group (GBTG)

* LifeStance Health Group (LFST)

* Rover Group (ROVR)

* Soho House & Company (SHCO)

* TETRA Technologies (TTI)

* Select Water Solutions, Inc. (WTTR)

Consider the results of my screen to be research candidates, not a buy list. The more you know about your stocks, the better your results.

These are my ideas, but do your own due diligence. The more you know about your stocks, the better your results.

published 8/14/23

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