Wall Street analysts often focus their research on up and coming companies. They do this for a couple of reasons. One reason is that they hope to generate new business. Another reason is that they hope to have some big winners to enhance their records.
In focusing on cheap companies, analysts are exploiting an attribute that many individual investors already understand, which is that low priced stocks are the most likely ones to produce large gains.
Individual investors that low priced stocks could be appealing for two reasons. One reason is that the low price means they have little down side risk in dollar terms. The second reason is that low priced stocks are generally the ones that deliver the largest short term 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.
That’s why we limited our search for potential bargains by focusing on stocks priced at less than $5 per share.
Then, we limited our potential buys to companies that are trading at least 50% below the target price of analysts who follow the stock. This indicates the stock could double in value in order to reach their target price.
Finally, we required stocks to be in up trends. An up trend can be defined with a moving average. For our purposes, we limited the potential buy candidates to those that are trading above their 200 day moving average, an indicator used to identify the long term trend.
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, high levels of institutional ownership and bullish institutional transactions. An example is shown below.
Six Stocks Meet Our Strict Requirements
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 strategies but any individual stock in the list could be a winner or loser.
Cerecor Inc. (Nasdaq: CERC)
CERC is a clinical-stage biopharmaceutical company that develops drugs to treat patients with neurological and psychiatric disorders.
The company’s lead drug is CERC-501, which has completed Phase II clinical trial for the adjunctive treatment of major depressive disorder (MDD), as well as to treat substance use disorders.
Other drugs in the pipeline include CERC-301 that has completed Phase II clinical trial for the adjunctive treatment of patients with MDD; CERC-406 that is in preclinical stage to treat residual cognitive impairment symptoms in patients with MDD; and CERC-611, a drug candidate for the treatment of partial-onset seizures in epilepsy.
The stock is consolidating after a sharp run up that began late last year.
ITUS Corporation (Nasdaq: ITUS)
ITUS acquires, and licenses emerging technologies in the areas of biotechnology.
The company develops Cchek, a platform for non-invasive blood tests for the early detection of various cancers, including breast, lung, colon, melanoma, ovarian, liver, thyroid, pancreatic, appendiceal, uterine, osteosarcoma, leiomyosarcoma, liposarcoma, vulvar, and prostate cancer. ITUS also develops immuno-therapy drugs for the treatment of cancer.
The stock appears to be testing support and is trading at a price that could be attractive for risk tolerant investors.
Mid-Con Energy Partners, LP (Nasdaq: MCEP)
MCEP owns and develops producing oil and natural gas properties in North America. The company’s properties are primarily located in the Mid-Continent and Permian Basin regions of the United States in Oklahoma and Texas.
As of December 31, 2017, its total estimated proved reserves of approximately 19.6 million barrel of oil equivalent.
The stock trades at a little more than half of its book value of $2.74, a value which offers a potential price target.
NII Holdings, Inc. (Nasdaq: NIHD)
NIHD provides wireless communication services to the individual consumers under the Nextel brand in Brazil. As of December 31, 2017, NIHD had approximately 3.246 million subscriber units.
The company markets its services through direct sales representatives, indirect sales agents, retail stores and kiosks, and other subscriber-convenient sales channels.
The stock offers access to Brazil, a country that could be in the midst of a political and economic turnaround.
Seven Stars Cloud Group, Inc. (Nasdaq: SSC)
SSC operates as an Artificial-Intelligent (AI) and Blockchain-powered Fintech company in the People’s Republic of China.
The company notes that it “provides asset owners and holders a method and platform for digital asset securitization, tokenization, and trading through managing and providing an infrastructure and environment that facilitates the transformation of traditional financial markets, such as commodities, currency, and credit into the asset digitalization.
It also offers a closed supply chain trading ecosystem for corporate buyers and sellers designed to eliminate standard transactional intermediaries and create a more direct and margin-expanding path for principals.
In addition, the company engages in consumer electronics e-commerce and smart supply chain management operations, as well as in oil trading business primarily in Singapore.
Further, it provides premium content and integrated value-added service solutions for the delivery of video on demand and paid video programming to digital cable providers and Internet protocol television providers.”
This might seem like a collection of trading buzzwords however the company has reported substantial growth in sales, an average of 319% a year over the past three years, and earnings per share which increased an average of 52% a year over that time.
Stage Stores, Inc. (NYSE: SSI)
SSI operates specialty department stores primarily in small and mid-sized towns and communities. Its merchandise portfolio comprises moderately priced and brand name apparel, accessories, cosmetics, footwear, and home goods.
As of February 3, 2018, it operated 777 department stores in 42 states under the BEALLS, GOODY’S, PALAIS ROYAL, PEEBLES, and STAGE names; 58 GORDMANS off-price stores; and stage.com, an e-commerce Website.
The stock has rebounded along with optimism about a turnaround in retail but still trades at just 5% of its book value.
Any of these stocks could be a potential winner and all worth further research. If you are uncomfortable doing your own research, there is a TradingTips.com trading service, Triple-Digit Returns, which uses a very specific system for choosing the right stocks to trade.
Triple-Digit Returns looks for companies that are misunderstood and potentially undervalued, lost darlings, mergers or spinoffs that could benefit share holders, or companies that show signs of strong interest by insiders who know the company best and see value.
This service provides a recommendation once a week. It could be used for trading or learning how to analyze stocks since each recommendation includes a detailed explanation of the company. To learn more, you can click here.