Sell offs create panic and that leads to buying opportunities for value investors. This is how great fortunes are made according to super investor Warren Buffett.
Over the years, Buffett has offered a wealth of wisdom to individual investors including his advice to “be fearful when others are greedy and greedy when others are fearful.” With major stock market averages suffering their first 10% correction in years, now is potentially the time to be greedy.
When looking for buy candidates, we started our search by limiting our list to stocks priced under $5. The reason we like cheap stocks is because these are the ones that have been proven to be most likely to deliver large gains.
One study looked at how low priced, or cheap, stocks performed relative to more expensive stocks. The study found that cheap stocks delivered more than six times the average return of the more expensive stocks in a typical quarter.
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To minimize risk, we required the stock to have reported a profit for the past year and to show expected growth in profits over the current year. To further reduce risk, we looked for quarter over quarter earnings growth, a sign that profits are moving higher.
We have also found that an increase in sales is a common characteristic of successful stocks. We screened for companies that have reported an increase in sales over the past years. Finally, we added a value filter, requiring the PEG ratio to be less than 1.
The PEG ratio compares the stock’s price to earnings (P/E) ratio to the company’s reported earnings per share (EPS) growth rate. The ratio is found by dividing the P/E ratio by the EPS growth rate. A ratio of 1.0 indicates a stock is fairly valued. PEG ratios less than 1 highlight stocks that are undervalued no matter what their P/E ratio is. PEG ratios greater than 1 show a stock is potentially overvalued.
The PEG ratio recognizes that investors are willing to pay a premium for growth. In fact, companies growing earnings at 30% a year, for example, should have a higher P/E ratio than a company that is growing earnings at 3% a year.
One way to find stocks meeting these requirements is with the free stock screening tool available at FinViz.com. At this site, you could screen for a variety of fundamental factors and technical characteristics. Our screen is shown below.
Remember, there is no guarantee any stock will increase in value. Also, it is important to remember when we search for stocks using quantitative measures, our goal is to identify stocks that meet those criteria. The screens we develop could be used as the cornerstone of long term investment opportunities but any individual stock in the list could be a winner or loser.
Five stocks passed our screen.
Amira Nature Foods Ltd. (NYSE: ANFI) engages in processing, sourcing, and selling packaged Indian specialty rice. The company provides various types of basmati rice, other specialty rice and other food products, ready-to-eat snacks, edible oils, and organic products for retailers under the Amira brand; and non-basmati rice.
It also sells bulk commodities, including wheat, barley, legume, maize, sugar, soybean meal, onion, potato, and millet products to trading firms. The company sells its products to buyers in the Asia Pacific, Europe, the Middle East, North Africa, and North America; and distributors and retail chains in India.
The stock chart shows that momentum is turning up, indicating a potential rally in the stock is likely.
Cynergistek, Inc. (NYSE: CTEK) provides outsourced document management services and IT security consulting services primarily to the healthcare industry in the United States. It offers workflow solutions; and creates manageable, dependable print management programs by managing the back-office processes of hospital clients.
The company also provides technical risk and penetration testing, process and procedure development, and risk management services based on its proprietary Delphiis IT Risk Manager SaaS Solution. It serves financial institutions, and gaming and other industries.
The chart shows this stock sold off in line with the market recently, a potential sign of strength.
DHI Group, Inc. (NYSE: DHX) provides specialized Websites focused on select professional communities. The company operates Dice, a site that provides job postings of technology and non-technology companies for industries, such as positions for software engineers, big data professionals, and other technology and engineering professionals.
ClearanceJobs is an Internet-based career network that matches security-cleared professionals with hiring companies searching for employees. It also offers eFinancialCareers, a financial services careers website for financial services industry professionals.
Rigzone is a website that delivers online content, data, and career services in the oil and gas industry; Hcareers, a Website for hospitality jobs in North America; and BioSpace, a resource for biotechnology careers, news, and resources in the area of life sciences.
In addition, the company offers Health eCareers, a Website that provides career services across various disciplines and specialties in the healthcare industry, including physicians, nurses, and a range of allied health professions.
Further, it operates WorkDigital, which focuses on the recruitment industry; and Targeted Job Fairs for technology, energy, and security-cleared professionals, as well as provides getTalent, a software as a service talent sourcing management and engagement tool.
Nobilis Health Corp. (NYSE: HLTH) owns and manages ambulatory surgical centers (ASCs), and acute-care and surgical hospitals in the United States. The company’s healthcare facilities provide surgical procedures in various clinical specialties, including orthopedic surgery, podiatric, vein and vascular, pain management, gastro- intestinal, gynecology, and general, as well as ear, nose, and throat.
It also provides marketing services, patient education services, and patient care co-ordination management services to third party facilities and physicians. It operates 32 locations, including 5 hospitals, 14 ASCs, and 13 multi-specialty clinics.
A bullish divergence in the chart indicates the stock could be completing its bottoming pattern.
Diversified Restaurant Holdings, Inc. (NASDAQ: SAUC) operates Buffalo Wild Wings Grill & Bar franchised restaurants, which primarily offer fresh bone-in chicken wings. The company operates more than 60 Buffalo Wild Wings Grill & Bar franchised restaurants in Florida, Illinois, Indiana, Michigan, and Missouri.
This is a volatile stock, capable of delivering quick gains and appears to be rallying off of support.
Any of these stocks could be a potential winner and all worth further research. For those unsure of their ability to dedicate the time to researching the market, the stock trading tips service, PPK System, is designed to exploit patterns associated with market clues by looking for value and momentum in stocks.
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