There are a number of ways to find stocks that could deliver potential gains. Many of those strategies include benefiting from the analysis of others.
Wall Street is an unusual place in many ways. It is fiercely competitive since the very best fund managers, analysts and deal makers can generate billions of dollars a year in personal compensation. But, it is at the same time a place where sharing your best ideas can also be well rewarded.
This is true for analysts, in particular. Wall Street analysts are well paid by the standards of most investors. According to a recent survey, at large firms, the average analyst makes about $160,000 a year and at a hedge fund, the average analyst is paid about $120,00 a year.
While these are excellent salaries in almost any other industry, on Wall Street this compensation is far from the amount that’s possible. To increase their salaries, analysts know they must prove they have value. To do this, they need to share their best ideas.
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One way that analysts communicate their idea is through earnings estimates. Here too, the perception and reality of Wall Street may differ. Analysts are not really trying to estimate the reported earnings per share (EPS) of a company to the penny.
They are trying to be close and most importantly to identify the direction of the trend in EPS. Rising earnings are generally bullish while declining earnings are generally bearish. That trend of higher and higher earnings estimates is actually a reliable indicator of a company’s future success.
Academic studies show that the stocks of companies that are the subject of upward earnings revisions tend to deliver above-average performance while downward revisions are a sign that a stock price is likely to under-perform the broad market.
According to one study, “earnings estimate revisions are the most powerful force impacting stock prices.”
That means stocks with rising estimates could be the best investments for individual investors. This week, we focused on those stocks, looking for stocks where analysts increased estimated for expected EPS growth.
Finally, we focused on stocks priced at less than $15 per share. 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.
Five 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.
Tandem Diabetes Care, Inc. (Nasdaq: TNDM) a medical device company, designs, develops, and commercializes various products for people with insulin-dependent diabetes in the United States.
The company’s flagship product is the t:slim X2 insulin delivery system that comprises t:slim X2 pump, its disposable insulin cartridge, and an infusion set.
In addition, the company offers Tandem Device Updater, a PC and Mac-compatible Web-based system that allows users to update their pump’s software; t:connect diabetes management application, a cloud-based data management application, which provides a visual way to display therapy management data from the pump and supported blood glucose meters for users, their caregivers, and their healthcare providers; t:90 and t:30 infusion sets for use with its insulin pump products; and various pump accessories.
The stock’s long term down trend could end as the company moves towards profitability in the next few years.
Cleveland-Cliffs Inc. (NYSE: CLF) operates as an iron ore mining company in the United States. The company operates four iron ore mines in Michigan and Minnesota; and Koolyanobbing iron ore mining complex located in Western Australia.
The stock appears to have successfully tested support and could be nearing a breakout.
Vonage Holdings Corp. (NYSE: VG) provides communications services connecting people through cloud-connected devices worldwide. It offers various business services, including basic dial tone, call queue, conferencing, call groups, mobile functionality, CRM integration, and detailed analytics, as well as Vonage Essential services.
The company also provides home telephone replacement services through various service plans with basic features, such as voicemail, call waiting, call forwarding, simulring, visual voicemail, and extensions, as well as area code selection, virtual phone number, and Web-enabled voicemail.
Its primary home telephone offerings include Vonage World plan that offers unlimited domestic calling; calling to landline phones in approximately 60 countries; and calling to mobile phones in various countries, as well as Vonage North America plan for unlimited calling across the United States, Canada, Mexico, and Puerto Rico.
In addition, the company provides Vonage-enabled devices, which allow customers to use the Internet connection for their computer and telephones at the same time; and high-speed broadband Internet service that allows calls over the Internet either from a telephone through a Vonage-enabled device, or through soft phone software, or mobile client applications.
The company reports approximately 2.3 million consumer subscriber lines and business seats. The stock chart reflects the company’s success in acquiring customers.
While estimates are rising, the stock is richly valued at about 30 times expected earnings, and a close stop loss could be best for positions in this stock.
Banco Santander (Brasil) S.A. (NYSE: BSBR) provides banking products and services in Brazil and internationally. The company operates in two segments, Commercial Banking and Global Wholesale Banking.
It offers savings and investment products, annuities, loans and advances, mortgage loans, credit cards, pension plans, and social securities, as well as leasing and foreign exchange services.
The company also provides payment, securities and insurance brokerage, capitalization, buying club management, securitization, credit and recovery management, resource management, and other services.
Analysts expect consistent earnings of about $0.90 per share. At just 15 times earnings, the stock could be worth $13.50. The chart pattern indicates that target could be achieved soon as the stock is poised for an upside breakout.
Extreme Networks, Inc. (Nasdaq: EXTR) provides software-driven networking solutions for enterprise customers worldwide. The company designs, develops, and manufactures wired and wireless network infrastructure equipment; and develops the software for network management, policy, analytics, security, and access controls.
It offers edge/access Ethernet switching systems that delivers Ethernet connectivity for edge of the network; aggregation/core Ethernet switching systems for aggregation, top-of-rack, and campus core environments; data center switching systems for enterprises and cloud data centers; and wireless access point products, as well as distributed Wi-Fi networks.
The company also provides ExtremeControl, a network access control solution that allows the enterprises to unify the security of their wired and wireless networks with visibility and control over users, devices, and applications; and ExtremeAnalytics, a network-powered application analytics and optimization solution, which captures, aggregates, analyzes, correlates, and reports network data that enables in decision making and enhancing business performance.
In addition, it offers ExtremeCloud, a wired and wireless cloud network management solution, which offers advanced visibility and control over users and applications.
The company is expected to report earnings of $0.80 a year and to deliver consistent growth of 20% a year in the future. The stock is priced at less than 10 times next year’s expected earnings and is in a long term up trend.
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