Screening for Out-of-Favor Bargains

Zacks is a well-known investment research service that favors earnings momentum in determining its stock ratings. Since disappointing earnings often serves as the catalyst for undervalued stocks, it may behoove us to comb through Zacks’ out-of-favor stocks (as indicated by a Zacks Rank of 4+) in search of opportunity.

To narrow down the list and hopefully winnow out deserved losers, we add criteria that price-to-cash-flow be no higher than 5, possibly indicating a stock is undeservedly cheap. Finally, we require 5-year average ROA of at least 10%. After removing a few international and pink sheet names, we end up at the following list:

  • Apache Corporation (APA)
  • Huron Consulting Group Inc. (HURN)
  • Noble Corporation (NE)
  • Seagate Technology Public Limited Company (STX)
  • TBS International plc (TBSI)
  • TGC Industries, Inc. (TGE)
  • Western Digital Corporation (WDC)

View the full screen table, including company descriptions and valuations.

In general, energy names dominate the list and two large hard-disk manufacturers pop up as well, indicating the market’s distaste for that industry, which I share as my broad cash-flow analysis indicates better entry points are in order for STX and WDC.

As always, this list should be used only as a starting point for more research, not as a basis to make a definitive investment decision.

[This post was excerpted from this week's EA-Premium stock screen.]

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