September and October sure have been kind to investors, with the
major indices up more than +10% and some individual stocks up +30%
to 40% since late August.
Back then, it was easy to spot bargains after a summer swoon.
Nowadays, it's getting harder to find stocks that represent a true
bargain, so you'll have to dig deeper. That's why it pays to look
at the stocks that have missed out on this rally.
I went looking for stocks that trade for less than half of their
52-week high. I call them the "half-off" crowd. Let's go shopping.
I recently profiled
Office Depot (
, which is starting to look like a niceturnaround play. [
Read my take here
Office Depot has been beaten to a pulp by rival
Staples (Nasdaq: SPLS)
for more than a decade, but management now appears to understand
how to more effectively compete by improving the merchandising mix,
cutting unnecessaryoverhead and conducting more targeted and
effective marketing. Those efforts are not yet hitting the
, but should in the coming quarters. Investors will hear about
management's latest efforts when the retailer delivers quarterly
results next Wednesday, October 27.
I also remain quite bullish on
DG FastChannel (Nasdaq: DGIT)
, which looks very oversold,
as I noted recently
. Shares have rebounded +20% to $20 since then, but I still think
$30 is a realistic target price as investors realize that the
is dented, but not broken. That's +50% upside from here.
It takes time for businesses to regain momentum, but all the pieces
are in place. DG FastChannel has a vast and hard-to-steal customer
base, more than $200 million invested in its technology platform,
and is still well-positioned to capitalize on the changing
broadcast media landscape.
This is a good company in a bad industry -- printing. The company
offers a full range of commercial printing services, including
envelopes, labels and business documents, and has developed a
comprehensive suite of services and products. But the
still-weakeconomy has led to a slowdown in demand across the
industry, with several players being forced into bankruptcy.
Despite a hefty $1.3 billion
, Cenveo is still generating strong
. As the
free cash flow
should rebound north of the $100 million mark, where it stood in
2008. The company's market cap value of just $337 million severely
discounts that cash flow potential, due to that high debt load. As
the economy rebounds and any debt concerns recede, the company
should trade up to at least six or seven times that $100 million
free cash flow target, implying a potential double -- or more --
from current levels.
Alvarion (Nasdaq: ALVR)
This company sells telecom network equipment that provides
superfast data transmission speeds known as 4G. Telecom operators
around the world have started to heavily invest in network
upgrades, and Alvarion has secured an impressive slate of
contracts. But the company was hard-pressed to make profits from
Impatient investors grew tired of waiting for profits and shares
have fallen from $14 to $2 since late 2007. At this point, the
of $133 million is not far above Alvarion's net cash holdings of
$91 million. But all is not lost. Recent contract wins in India and
Canada should help sales rise +10% next year and help the company
move back into profitability. Shares tend to trade on contract
announcements, and with shares likely at a bottom, any new
announcements couldyield quick gains.
Action to Take -->
These stocks are selling at a steep discount to recent highs thanks
to their own missteps. Yet each has a considerable track record,
and their problems are fixable. Track their comments on the
upcoming slate of conference calls for signs of progress. These are
the kinds of stocks to buy when improvements have begun. By the
time those improvements have fully taken hold, shares will no
longer be so cheap.
-- David Sterman
David Sterman started his career in equity research at Smith
Barney, culminating in a position as Senior Analyst covering
European banks. David has also served as Director of Research at
Individual Investor and a Managing Editor at TheStreet.com. Read
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Disclosure: Neither David Sterman nor StreetAuthority, LLC hold
positions in any securities mentioned in this article.