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 Four Overlooked Stocks Ready to Soar?

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Despite the recent market bumpiness, many stocks are still trading substantially above their year-ago prices, and arguably, many are still overvalued. 

Screen for Overlooked Stocks

So, what to buy now? Here’s a screen for finding fundamentally solid stocks that missed last year’s rally, but are now showing signs of life? As often the case, I’ll use the free FINVIZ stock screener (finviz.com) to demonstrate the process.

Setup Screener

Start by selecting “screener” on the FINVIZ home page, and once there, check “All” on the Filters menu to see the menu of selection filters available to search for stocks meeting your requirements. For each filter that you want to add, use the associated dropdown menu to select search values.

Overlooked Stocks Universe

We’ll start by isolating stocks that didn’t move up much in share price since last May, when the rally started. We can do that by limiting our picks to stocks trading below their long-term (200-day) moving average. If you’re rusty on your stock market terms, the moving average is the average closing price of a stock over a specified period, in this case, 200 market days, which translates to around 41 weeks. Do that by using the 200-Day Moving Average Filter dropdown menu to select “Price Below SMA.” When I ran the screen, more than 3,900 stocks met that requirement.

Next, we’ll pinpoint the stocks from that group that have recently begun a turnaround. You can do that by using the Performance filter and selecting “Month Up” to pinpoint stocks that have moved up in share price over the past month.  Adding this requirement cut our list down to around 1,500 beaten down, but starting a turnaround candidates.

Solid Stocks

Now, limit your list to members of the S&P 500 index. These are large-cap, fundamentally-solid stocks selected for their consistently solid earnings growth track records. Do that by using the Index filter to select “S&P 500.” Adding that filter cut our candidate list down to around 100 candidates.

Strongest Players

Finally, we’ll add two fundamental checks to isolate the strongest candidates from that list, starting with profitability.  

Profitability, more than simple earnings per share, measures how efficiently a firm employs its assets to generate those earnings. Return on Equity (ROE), the most widely-used profitability gauge, compares earnings to shareholders’ equity. Any positive value says a company has been profitable over the past 12-months, but higher is better. Specify ROE “over 10%” using the Return on Equity filter to isolate your list to only the most profitable candidates.

You always do better by avoiding high-debt stocks. So, continuing the fundamentally strongest theme, we’ll use the Debt/Equity ratio, which compares total debt to “shareholders equity” (book value) to rule out debt-laden stocks. D/E ratios start at zero and the higher the ratio, the higher the debt. However, almost all companies carry some incidental debt. So, using the Debt/Equity filter, specify “Under 2.0,” which rules out all stocks carrying significant debt.

Four Fundamentally Strong, But Overlooked Stocks

My screen turned up four fundamentally strong stocks that missed last year’s rally but are now showing signs of life::

Cerner (CERN): Healthcare Information Services

Chipotle Mexican Grill (CMG): Restaurants

Fortune Brands Home & Security (FBHS): Home &Security Products

Regeneron Pharmaceuticals (REGN): Biotech  

Click here to see which stocks the screen is turning up today.

As always, consider stocks listed by a screen to be research candidates, not a “buy” list. The more you know about your stocks, the better your results.

published 3/13/18

 

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