The old adage of "sell in May and go away" has been amazingly
accurate the last three years. Take a look at the returns on the
S&P 500 over the first four months of the year compared to the
returns from the following four months:
Although this may look a little ominous for this summer, I'm a firm
believer that you shouldn't base your investing decisions upon what
month it is. And as long as Europe's problems stay Europe's
problems, meaning their economic woes don't drag the U.S. into a
recession, then the investing landscape looks bullish for
U.S.-focused equities.
Why?
Because the recent economic data, although not stellar, has been
"good enough" to drive strong corporate earnings, as we saw this
past earnings season. And with the S&P now trading at just
12.1x forward four quarters earnings estimates, stocks look awfully
attractive compared to the paltry returns of other asset classes
like cash, bonds or real estate.
Price and Fundamentals Diverging
The recent stock market pullback has indiscriminately dragged down
some stocks that otherwise should be marching higher. I ran a
screen for companies that (1) delivered strong first quarter
revenue and earnings surprises, (2) have had strong positive
earnings estimate revisions, but (3) have sold off more than -10%
over the last month.
This decoupling of price and fundamentals could prove to be a
wonderful buying opportunity if the U.S. economy continues to at
least slowly improve.
Here are 4 stocks that look oversold right now:
Cabela's
(
CAB
)
Cabela's is a growing specialty retailer focused on hunting,
fishing, camping and other outdoor recreation merchandise. The
company has delivered 4 consecutive positive earnings surprises,
including a strong revenue and earnings beat in late April driven
by a 4.2% increase in same-store sales. Consensus estimates have
been soaring ever since, sending the stock to a Zacks #1 Rank
(Strong Buy).
Despite the strong fundamentals, shares have sold off this month
along with the overall market. The stock now trades at just 12.6x
12-month forward earnings, and it sports a PEG ratio of 0.9 based
on a consensus long-term growth rate of 14.3%.
Titan Machinery
(
TITN
)
Titan delivered a blowout quarter in April with revenue soaring 65%
to $607 million, crushing the consensus of $439 million. And EPS
jumped 47% to 84 cents, easily beating the Zacks Consensus Estimate
of 53 cents.
Earnings estimates soared, sending the stock to a Zacks #1 Rank
(Strong Buy) stock. The stock was soaring too, until European
concerns caused the overall market, and Titan, to selloff.
But shares of TITN look awfully attractive now trading at just
11.0x 12-month forward earnings, a discount to its historical
median of 13.1x.
Trinity Industries
(
TRN
)
Trinity has gotten beaten up during the pullback too. But this
isn't due to any company-specific problems. The company, which
manufactures railroad, marine and structural products, delivered a
huge earnings surprise on April 25 driven by a 46% surge in
revenue.
And management provided bullish guidance for the remainder of the
year, prompting analysts to revise their estimates higher. This
sent the stock to a Zacks #1 Rank (Strong Buy).
Shares are now trading at just 7.9x 12-month forward earnings, well
below its 10-year median of 18.4x. If the company can deliver on
management's earnings guidance, this stock warrants a much higher
multiple.
Wesco International
(
WCC
)
Wesco delivered a strong 'beat & raise' quarter in late April
that has gotten almost completely overlooked by a nervous market.
The company provides electrical, industrial, and communications
maintenance, repair, and operations (MRO) and OEM products. It is a
Zacks #1 Rank (Strong Buy) stock.
Despite the strong earnings momentum, shares have fallen sharply
this month. Valuation looks awfully attractive with the stock
trading at just 11.1x forward earnings. Its PEG ratio is just below
1.0 based on a consensus long-term EPS growth rate of 11.5%.
The Bottom Line
These 4 stocks have been punished not because of their fundamentals
but because of a fearful stock market. If concerns over Europe's
problems spreading to the U.S. turn out to be overblown, look for
these same stocks to rally the fastest.
Todd Bunton is the Growth & Income Stock Strategist for
Zacks Investment
Research
and Editor of the
Income
Plus Investor Service
.
CABELAS INC (CAB): Free Stock Analysis Report
CABELAS INC (CAB): Free Stock Analysis Report
TITAN MACHINERY (TITN): Free Stock Analysis
Report
TITAN MACHINERY (TITN): Free Stock Analysis
Report
TRINITY INDS IN (TRN): Free Stock Analysis
Report
TRINITY INDS IN (TRN): Free Stock Analysis
Report
WESCO INTL INC (WCC): Free Stock Analysis
Report
WESCO INTL INC (WCC): Free Stock Analysis
Report
To read this article on Zacks.com click here.