3 Stocks to Consider for a Market Bounce
Dr. Thomas Carr
Founder, CEO of DrStoxx.com
Founding Partner of The IXTHYS Letter™ and creator of The IXTHYS Plan™
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One of my favorite approaches to the markets is to start with a fundamentals screen that scans for stocks trading over $10 per share, over 500,000 shares per day, with a beta higher than 2 (i.e., twice as volatile as the S&P500), and that show strong bottom-line growth and top-line value. The companies also need to be profitable and trading at a steep discount to forward earnings multiples. Running this scan typically gives me about five to ten stocks to focus on. From there I do trend analysis, momentum analysis, and plot out price patterns and projections. This usually helps me whittle the list down to just a few stocks worthy of trading and/or investing in.
This week my approach turned up three companies for your consideration. With the markets trading in correction territory and forming a low level base, these are likely smart places to put some new cash to work in anticipation of a market bounce. If you want to trade any of these suggestions, I strongly recommend doing your own analysis and setting a reasonable stop-loss on each position to protect against any further downside in the overall market. See my analysis below.
Builders First Source is a familiar name to anyone living in a new housing community. The company produces and supplies homebuilders by transporting materials from storehouses to building sites. The company is followed by Deutsche Bank, Stifel, Sterne Agee and Gabelli, all of whom have either a buy or a hold (only Gabelli) on the stock. The stock recently hit a new multi-year high in September but has since pulled back about 24% off those levels. It is trading at support. The company is growing earnings at a 140% rate, and sales at a 19% year on year rate. Shares trade at a low Price to Sales ratio and a forward multiple under 10. Back in April the company announced it was buying its largest rival, ProBuild, which caused a huge rally. Shares have since fallen back to the low end of the trading range that developed after that news.
This Chinese tech company makes the semiconductors that keep some of the world’s largest solar installations running smoothly. Jinko’s units help the panels maximize the transformation process whereby sunlight is converted into energy that is then transported to the grid. The stock hit new 52-week highs back in June, but it has been in a downtrend since then, along with the rest of the solar and semiconductor industries. The falling price of oil is partly to blame for this, since lower oil makes solar less attractive. But there is no getting around the numbers. Jinko is growing earnings at a 123% rate, sales at a 45% rate, and shares trade at truly miniscule P/E, P/S, P/B and P/C ratios. This is a great growth-value play and it will rocket higher if oil can rally and the market is supportive.
Dycom is a maker of the supportive infrastructure used by the telecommunications and cable TV industries (among other things). Clearly the stock is in a nice uptrend with very little damage done to it by the market's recent turmoil. This is a chart poised to rally. The company sports a 109% eps growth rate, including 106% last Q on Q, and trades at a low 18x forward earnings. It's PEG ratio is the 2nd lowest in the industry. Analysts have been raising earnings estimates so the stock is almost guaranteed to run higher into its next earnings announcement in late November.