Will Mr. Market present a new all-time high? Should we join the party? We maintain the TSX as the mo...
Finding the Undiscovered
05/21/2004 12:00 am EST
Avoiding the hectic pace of Wall Street, Nancy Zambell does her best analytic thinking from her country gardens in Tennessee. The result is an exceptional, common-sense approach to investing, focused on stocks that are undiscovered by the institutional crowd.
"Investors should avoid, or at least limit their holdings, in stocks with a gaggle of analysts, high institutional holdings, or high price-earnings ratios. On the other hand, we would look to buy companies with high growth rates. We look for double-digit growth in earnings per share and revenues. A ‘reasonable’ valuation is determined by industry standards and common-sense analysis. We look at a company’s debt index, which is determined by dividing its long-term debt by equity. We then compare that figure to general industry debt levels. A company flush with cash has more flexibility in troubled times. It has an increased ability to meet interest payments easily, and the cash provides them with opportunities to pick up bargain companies who don’t have the financial strength to pull through a crisis.
"We also ask, ‘Are the insiders buying?’ Who’s buying or selling, and how much? For example, some of the best stocks based on insider buying trends would be First Community Bancshares (FCBP NASDAQ), a Southern California bank with 23 insider buys recently, and Long Island's Suffolk Bancorp. (SUBK NASDAQ), which has had 18 insider buys. We also like Convergys (CVG NYSE), which provides outsourced customer management, employee care, and integrated billing services. The company has seen 21 insider buys. On the other hand, some of the worst stocks based on insider selling trends would be Ameren (AEE NYSE), an electric and gas utility, and Owens Illinois (OI NYSE), a maker of packaging and glass containers. Both stocks have seen 19 insider sales. Patina Oil (POG NYSE) has seen sales by 18 insiders.
"Meanwhile, based on an overall assessment of the primary factors we consider– price-earnings, institutional ownership, analyst coverage, debt-to-equity, cash from operations, sales & earnings growth, and insider trends, here are five current recommendations that present 'undiscovered and untapped' opportunities:
"Knight Trading (NITE NASDAQ) is involved in equities, derivatives, and asset management. In the latest three- month period ended 3/31, revenues were up 90%. Net income from continuing operations were $31.8 million versus a loss of $8.8 million.
"WebEx Communications (WEBX NASDAQ) is involved in integrated telephony and Web-based audio and video services. For the three months ended 3/31, revenues rose 35% while net income was up 59%.
"Wireless FACS (WFII NASDAQ) is involved in wireless communications networks. For fiscal year 2003, the company reported revenues up 40% and net income of $23.5 million compared with a loss of $63.9 million.
"Copart (CPRT NASDAQ) is involved in salvage vehicle auction services. For the six months ended 1/31, the company reported an 11% gain in revenues, while net income rose 15%.
"Urban Outfitters (URBN NYSE) is a retailer, with such chains as its namesake Urban Outfitters, as well as Anthropologie and Free People stores. For the fiscal year ended 1/31, the company reported revenues up 30% and net income up 79%.
"Candela Corp. (CLZR NASDAQ) manufactures lasers for aesthetic, medical, and cosmetic concerns. For the six-month period ended 12/27, revenues were up 36% while net income came in at $4.2 million up from $1.8 million."
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