One interesting way to find potentially undervalued stocks is by finding those that do not proportionately increase in price for a given increase in Earnings Per Share (EPS) estimate.
To create this list, we started with a theoretical observation about P/E ratios. If the Price/Earnings Per Share ratio is equal to some constant k, it follows that there should be a linear relationship between Price and Earnings per Share. In other words:
If P/E = K
then P = (K)(E)
If there is a mismatch between growth rates in projected earnings per share values and price, a mis-pricing may have occurred, presenting an opportunity to value investors.
All of the stocks mentioned below are technically oversold, with RSI(14) < 40. These stocks have also seen an increase in the current year EPS analyst projection over the last 30 days. For each of these stocks, the price change has lagged the change in EPS projections (actually decreasing), which indicates that these stocks may still have to price in some good news.
Yes, this approach isn't 100% accurate. There is no reason to believe that P/E should be equal to a constant at all times (that is, after all, a simplifying assumption to build a screen). But the goal here is to give you a starting point in finding potentially undervalued stocks.
Do you think these stocks have been oversold?
List sorted by difference between change in EPS and change in price.
1. Silver Wheaton Corp. (SLW): Silver Industry. Market cap of $12.26B. RSI(14) at 39.71. Over the last 30 days, the current year EPS consensus has increased by 17.49% (from $1.83 to $2.15), while price decreased by 15.49% (from $41.70 to $35.24). The stock has performed poorly over the last month, losing 19.06%.
2. AGCO Corporation (AGCO): Farm & Construction Machinery Industry. Market cap of $4.84B. RSI(14) at 39.06. Over the last 30 days, the current year EPS consensus has increased by 23.86% (from $3.06 to $3.79), while price decreased by 5.79% (from $53.50 to $50.40). The stock has gained 80.01% over the last year.
3. Boston Scientific Corporation (BSX): Medical Instruments & Supplies Industry. Market cap of $10.54B. RSI(14) at 38.97. Over the last 30 days, the current year EPS consensus has increased by 25.81% (from $0.31 to $0.39), while price decreased by 3.53% (from $7.08 to $6.83). The stock has gained 8.83% over the last year.
4. The Dow Chemical Company (DOW): Chemical Industry. Market cap of $43.32B. RSI(14) at 35.88. Over the last 30 days, the current year EPS consensus has increased by 15.44% (from $2.59 to $2.99), while price decreased by 5.28% (from $38.23 to $36.21). This is a risky stock that is significantly more volatile than the overall market (beta = 2.27).
5. Barrick Gold Corporation (ABX): Gold Industry. Market cap of $45.53B. RSI(14) at 33.25. Over the last 30 days, the current year EPS consensus has increased by 3.10% (from $4.19 to $4.32), while price decreased by 16.79% (from $54.81 to $45.61). The stock has performed poorly over the last month, losing 15.97%.
6. GOL Linhas A (GOL): Regional Airlines Industry. Market cap of $3.43B. RSI(14) at 31.82. Over the last 30 days, the current year EPS consensus has increased by 9.28% (from $0.97 to $1.06), while price decreased by 10.08% (from $13.89 to $12.49).
7. CNH Global NV (CNH): Farm & Construction Machinery Industry. Market cap of $9.82B. RSI(14) at 35.4. Over the last 30 days, the current year EPS consensus has increased by 8.75% (from $2.63 to $2.86), while price decreased by 9.65% (from $45.09 to $40.74). This is a risky stock that is significantly more volatile than the overall market (beta = 2.56). The stock has gained 65.65% over the last year.
8. Broadcom Corp. (BRCM): Semiconductor Circuits Industry. Market cap of $18.0B. RSI(14) at 37.93. Over the last 30 days, the current year EPS consensus has increased by 2.17% (from $2.77 to $2.83), while price decreased by 14.67% (from $39.54 to $33.74). The stock has performed poorly over the last month, losing 11.84%.
9. Nucor Corporation (NUE): Steel & Iron Industry. Market cap of $13.54B. RSI(14) at 32.8. Over the last 30 days, the current year EPS consensus has increased by 7.09% (from $2.68 to $2.87), while price decreased by 9.49% (from $46.48 to $42.07). The stock has gained 3.83% over the last year.
10. Alpha Natural Resources, Inc. (ANR): Industrial Metals & Minerals Industry. Market cap of $6.08B. RSI(14) at 39.74. Over the last 30 days, the current year EPS consensus has increased by 6.00% (from $4.67 to $4.95), while price decreased by 10.37% (from $56.22 to $50.39). The stock is a short squeeze candidate, with a short float at 25.78% (equivalent to 5.14 days of average volume). The stock has gained 47.38% over the last year.
11. The Blackstone Group (BX): Asset Management Industry. Market cap of $19.44B. RSI(14) at 38.97. Over the last 30 days, the current year EPS consensus has increased by 4.85% (from $1.65 to $1.73), while price decreased by 10.37% (from $19.00 to $17.03). This is a risky stock that is significantly more volatile than the overall market (beta = 2.33). The stock has gained 64.1% over the last year.
12. Smithfield Foods Inc. (SFD): Meat Products Industry. Market cap of $3.42B. RSI(14) at 34.01. Over the last 30 days, the current year EPS consensus has increased by 3.20% (from $2.81 to $2.90), while price decreased by 11.83% (from $23.42 to $20.65). The stock has performed poorly over the last month, losing 11.01%.
*Analyst EPS estimates 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.
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