Charts Point To A Rebound For These Underdog Stocks
I have an insatiable curiosity about things.
This is particularly true when it comes to thestock market andinvesting . There is little I love more than discovering unique, off-the-beaten-trackinvestments possessing dramaticupside potential. My curiosity thrives on ferreting out under-the-radarstocks ignored by the traditionalWall Street analysts and the mainstream financial media.
When everyone is talking about Apple (Nasdaq: AAPL) or Goldman Sachs ( GS ) , there are scores of lesser-known firms in unusual and seldom-mentioned niche markets quietly enriching investorsyear after year.
These companies often have little in common. They can be from diverse industries, have radically differentmarket capitalization sizes and even be the underdog in a particular niche.
However, they are relatively unknown to the average investor, receive little mainstreamanalyst coverage -- andoffer compelling reasons to invest now or in the near future.
The first name on my list of obscure stocks is American Vanguard Corp. ( AVD ) . (Despite the similar name, this company couldn't be more different from Vanguard Group, the behemoth financial company.) A maker of agricultural pesticides, American Vanguard recently delivered impressive fourth-quarter results and has an incrediblybullish chart pattern right now, creating a perfectinvestment scenario.
Theearnings per share of 39 cents in the quarter beat theconsensus estimate of 4 cents and represented an increase of 23 cents over the same quarter of 2011.Profit surged nearly 80% year-over-year, to more than $11 million, whilerevenue beat consensus estimates by climbing 28%, to just more than $104 million.
All the standard metrics revealed solid performance driven by the firm's "ace in the hole" product to combat rootworm, which has become a major enemy of corn farmers.
American Vanguard has a lock on the market for pesticides and specializes in eliminating rootworm from cornfields. It has also developed a unique delivery system known as a "smart box," which protects farmers from the hazards of using the pesticide. This demand has provided the company with an optimistic vision for the future.
In addition, American Vanguard has entered a marketingpartnership with heavyweight Monsanto Co. ( MON ) that is expected tosupport future results.
Complementing the positive results, I find the technical picture provocative. The stock has fallen from around $33.50 in mid-March to support at $28.
This support is of the triple-bottom variety, which is signaling a near-term bounce in the works. Buying now with a 12-month target of $35 makes solid fundamental and technical sense.
The next name on my list couldn't be more different than American Vanguard -- but the stock price pattern is uncannily similar.
Have you ever wondered what happens to government assets after they are replaced or discarded? Here is your answer: Liquidity Services (Nasdaq: LQDT) .
This company provides auction services for the U.S. government by operating websites like GovDeals.com and GovernmentLiquidation . Think of the company as the government's version of eBay. Various government sectors, including the Department of Defense, use the auction system to dispose of assets and scrap that are no longer needed. In addition, Liquidity Services also auctions assets for dozens of international manufacturing companies.
MaverickCapital hedge-fund manager Lee Ainslie owns more than 2 millionshares , and the company boasts a five-year price/earning-to-growth (PEG ) ratio of 0.7. With amarket cap close to $1 billion, thissmall-cap stock has been very volatile lately.
Shares are priced at around 23 times earnings, but an average of 22% earnings growth is projected during the next five years. The company boasts about $45 million incash and a debt-freebalance sheet .
However, shares have been decimated, dropping nearly 22% during the past year. Management cutguidance as the company'sfree cash flow is lagging compared with reported income. The auction company is currently generating about 70 cents in profit for every $1 reported asnet income . I am betting this is only a short-termissue andwill be rectified during the coming months.
The business remains steady and government spending isn't likely to end anytime soon, providing this company with plenty ofinventory . Technically, shares have bounced off a triple bottom in the $29 range and have pushed higher to the $33 area. I like this stock right now with a 12-month target price of $43.
Risks to Consider: Both companies havemarket risk . Competitors, changes in theeconomy and internalissues could strike at any time. It is always critical to use stops and position size properly when investing.
Action to Take --> Consider American Vanguard for its technical picture and Liquidity Services based on the technical triple-bottom bounce combined with the expectations of improved free cash flow and solid overall business. Buying now with a 12-month target price of $35 for American Vanguard and $43 for Liquidity Service makes sense.