Half-Off Stocks You Can't Afford to Ignore

By David Sterman

September and October sure have been kind to investor with the major indices up more than 10% and some individual stocks up 30% to 40% since late August.

Back in August 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 highs. I call them the "half-off" crowd. Let's go shopping.

Office Depot

I recently profiled Office Depot (ODP) which is starting to look like a nice turnaround play.

Office Depot has been beaten to a pulp by rival Staples (SPLS) for more than a decade, but management now appears to understand how to more effectively compete by improving the merchandising mix, cutting unnecessary overhead and conducting more targeted and effective marketing. Those efforts aren't yet hitting the income statement, but should in the coming quarters.

DG FastChannel

I also remain quite bullish on DG FastChannel (DGIT), which looks very oversold (Read about DG FastChannel here). Shares have rebounded 20% to $20 since then, but I still think $30 is a realistic target price as investors realize that the company's business model 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.

Cenveo

Cenveo (CVO) 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-weak economy has led to a slowdown in demand across the industry, with several players being forced into bankruptcy.

Despite a hefty $1.3 billion debt load, Cenveo is still generating strong cash flow. As the economy picks up, 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.

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