4 Cheap Stocks with Bullish Momentum
05/20/2011 9:22 am EST
Those looking to trade with the trend and still get good values should look to these four stocks, all of which are trending confidently higher but still seem considerably undervalued.
To compile this list, we looked for stocks with these characteristics:
- Market cap above $300 million
- 50-day moving average recently crossing above below the 200-day moving average (a bullish technical signal called the "Golden Cross")
- Trading at a significant discount to the “Graham Number”
The Graham Number is considered to be the maximum price an investor should pay for a stock, according to the formula developed by Benjamin Graham.
That formula is calculated as follows:
Graham Number = Square Root of (22.5) x (Earnings per Share) x (Book Value per Share).
This equation is predicated on Graham’s belief that the price-to-earnings (P/EPS) ratio should be no more than 15, and the price-to-book value (P/BVPS) ratio should be no more than 1.5.
Therefore, we only included companies that meet both of these criteria. As a result, the product of the two should not be more than 22.5. In other words, (P/EPS of 15) x (P/BVPS of 1.5) = 22.5.
We also created a price-weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 index over the last month. Here’s how it graphed out:
NEXT: See the Four Stocks That Comprise This List|pagebreak|
Spartan Stores Inc. (SPTN) is in the food wholesale industry and has a market cap of $363.60 million. The Graham number is $20.78.
Given the current price of $16.53, this implies an upside of 25.69%. The stock is a short squeeze candidate, with a short float at 6.15% (equivalent to 16.55 days of average volume). The stock has lost 2.78% over the last year.
Ennis Inc. (EBF) is in the office supplies industry and has a market cap of $480.18 million. The Graham number is $22.82.
Given the current price of $18.50, this implies an upside of 23.37%. The stock has gained 6.22% over the last year.
NEXT: The Two Remaining Stocks on the List|pagebreak|
National Interstate Corporation (NATL) is in the property and casualty insurance industry and has a market cap of $421.85 million. The Graham number is $26.95.
Given the current price at $21.85, this implies an upside of 23.32%. The stock has gained 3.98% over the last year.
SCANA Corp. (SCG) is in the diversified utilities industry and has a market cap of $5.36 billion. The Graham number is $44.47.
Given the current price at $41.67, this implies an upside of 6.71%. The stock has gained 17.76% over the last year.
By the Staff at Kapitall.com