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Five Oversold Stocks: One Is a Strong Buy, One Is a Lotto Ticket

RSH Revenue Quarterly Chart RSH Revenue Quarterly data by YCharts

RadioShack (RSH - Get Report)

Background: RadioShack is one of the nation's largest and most trusted consumer electronics retailers in the United States and offers both on- and off-line shopping convenience.

52-Week Range: $1.90 to $11.84

Book Value: $6.66

Price To Book: 0.3

RadioShack was the classic yield trap. If you want to learn more about how to avoid yield traps, study the last two years of RadioShack's news, dividends, SEC filings and stock price history. I am including it here more as a warning, but the Shack did appear on my radar.

The shares already fell through the floor when the company canceled the dividend. The announcement sent the shares even lower.

The Shack is what I would call a "good news play." You buy this one with a good-till-cancel order in place at your target profit area. With a share price near $2, it's like an option without an expiration date.

The "lotto" play is to buy after a three-day dip, and wait (and hope) for good news that pops it higher by 20%-30% and you exit. You don't care what the news is as long as it moves the shares higher. This can take months to pay off; however, for $2 the odds are much better than playing the Powerball. I bought a (very) few shares with this in mind.

The average analyst target price for RadioShack is $2.46. The short interest is 37.1%. Any stock under $5 is usually a bankruptcy candidate, and this one is certainly included. Shorts are betting heavy on further declines in share price, but this actually helps make the case for considering a long position. If positive news hits the wire, many shorts will quickly cover, adding buying pressure.

Hopefully it's obvious, but this is a high-risk play that should either be brushed to the side, or bought only using high-risk capital.

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