Searching for Bottomed Out Stocks

2010-05-01 02:59
In this week's screen, I'm searching for companies I ordinarily don't search for – bottomed out stocks that have recently hit, or are trading near, their 52-week lows. If the broader markets indeed have hit bottom (and I believe we likely saw the bottom on July 15th when the Dow hit 10,827), then most solid companies should see their stock prices go higher.

But in this screen I’m particularly interested in those stocks that have recently hit a potential bottom. Not just any bottom, but a recent 52-week low.

I'm looking for these kinds of stocks because some spectacular stocks have completely bucked the falling market's downtrend. And while many of these stocks will continue to do so, some will now fall or become out of favor as new Sectors and Industries take on leadership roles.

But as the market recovers and these stocks begin to get noticed, they should have some excellent upside potential.

Parameters

* Zacks Rank <= 3 The Zacks Rank is one of the best Ranking systems out there, with the Zacks #1 Ranks showing an average annual return of over 30%. The Zacks #2 Ranks show a return of nearly 20% while the Zacks #3 Ranks over 10%. The Zacks #4 Ranks and Zacks #5 Ranks, which are Sells and Strong Sells, have underperformed the market with returns of less than half as much and worse - so we're keeping those off of our list.

* % Change in F(1) Earnings Estimates over the last 12 weeks > 0 * % Change in F(2) Earnings Estimates over the last 12 weeks > 0 Because we're looking at Zacks #3 Ranks as well, we want to make sure that the analysts covering them are raising their estimates and getting more bullish on the stocks. And looking at full year estimate revisions helps to show how analysts feel about the companies beyond just one or two quarters.

* Year over Year Projected EPS Growth > 0 These companies have to have a growth story. Without any growth, it's hard to make a case for a sustained rally. So a brighter future for these companies is a must.

* Current Price/52 Week Low <= 1.2 Stocks trading at their 52 Week low will have a ratio value of 1. Stocks with a ratio value of 1.2 means it's 20% above the low. This screen looks for companies less than 20% off the low. In other words, it can be on the low, just a bit off the low or even up to 20% above it. But we're excluding companies more than 20% above the low as we want to make sure we're not getting into stocks that might be overextended on the upside.

* Relative % Price Change over the last 4 weeks equals In: -5 and 5 What this means is I’m looking for stocks that have traded in line with the S&P 500 over the last 4 weeks. They haven't dropped 5% more than the S&P, nor have they increased by 5% more than the S&P. In other words, they've been tracking the market, at least for the last 4 weeks.

* I’m also applying the above parameters to stocks over $5 with over 100,000 shares traded.

Results

This week (8/11/08), the screen produced 44 companies. Here are three of them:

EMR Emerson Electric Co. LLY Eli Lilly and Co. RRD R.R. Donnelley and Sons, Co.

What's interesting to see is that a lot of these stocks have put in double-bottoms or rounded bottoms or spike bottoms or even inverted head and shoulder bottoms. And for anybody who looks at charts, it's a great way to put fundamentally improving companies with bottoming chart formations onto your radar screen.

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