5 Stocks for an Oversold Market

NEW YORK (TheStreet) -- If you have been watching the stock market over the past several weeks, you've noticed Wall Street is not happy -- and for that matter neither am I. However, it's for two separate reasons.

Lately investors have become too skittish for my taste and seemingly have little understanding of what is really going on in the market. As Wall Street continues to appear on edge and wanting to punish anything that moves, I wonder how is it possible that the Dow can be down for the year as corporate profits everywhere appear to be on the rise? It doesn't make sense and shows that Wall Street lacks understanding on how to properly appraise value.

Be that as it may, one person's trash is another person's treasure, or as Buffett like to say, be greedy while others are fearful. So in my bargain-hunting mode, I have started to look for a few names that have become significantly discounted from their true potential. Not only do these companies offer considerable amount of value, but they present excellent margins of safety while also offering excellent yields.

I have targeted two networking companies in Cisco ( CSCO) and Hewlett-Packard ( HPQ), two chip names in Intel ( INTC) and Qualcomm ( QCOM) and closing out my list with software giant Microsoft ( MSFT).

First, in the networking realm, HP and Cisco are the clear front-runners within their own segments such as routing and switching. They are also well positioned for markets such as the cloud that is soon to emerge and dominate both consumer and corporate enterprises.

Cisco and HP at this point are excellent buys as both have become outstanding turnaround stories -- even though Wall Street has yet to latch on -- in particular to Cisco which continues to churn out one excellent quarter after another while maintaining margins that continue to lead the industry by almost 50%.

For HP -- what can be said that has not already said? The company recently reported better-than-expected earnings results that beat analysts' estimates both on the top and bottom lines -- prompting many naysayers to affirm that Meg Whitman was indeed the right person for the job. The company is combining its PC and printing divisions and recently confirmed that it will begin eliminating 27,000 jobs in a cost-saving measure of as much as $3 billion to $3.5 billion by 2014.

Another reason to be bullish HP is the same reason that I have become excited about both Microsoft and chip giant Intel. The company is due to release its new line of Ultrabook machines that will be based on Intel's chip platform and Microsoft's new Windows 8 operating system -- an event that I once said will add $8 to Microsoft's share price.

As it stands both Intel and Microsoft have also become significantly discounted, though it seems that Intel has become the more forgotten of the two as it continues to suffer from a market that has turned its attention toward the new kids on the block -- names that include ARM Holdings ( ARMH) and Nvidia ( NVDA).

However, astute investors should seize this opportunity to add to their positions as there is clear evidence that Intel continues to be underappreciated for performances that would have otherwise placed lesser-known companies in higher regard. Intel still does not get enough credit for having also become a "services company" -- to the extent that it saw close to double-digit growth in revenue in its last quarter.

As bullish as I am on Intel, I have become equally enamored with one of its rivals in Qualcomm -- a stock that has fallen 20% since reporting its most recent earnings. However, the company continues to affirm exactly why I think it has one of the best businesses not only among the semiconductors, but within the entire market. Even better, it operates in fast-growing industry. This is why it continues to amaze me as to how the company rarely (if ever) gets mentioned when listing some of the best brands and operations on the stock market.

Not only is Qualcomm an industry leader, but when one considers that its brand now controls the internal component space of almost 300 million smartphones and other devices, it becomes clear just how underappreciated the stock has become.

In its most recent conference call, management showed it has a firm handle on what it needs to do to mitigate the supply-chain issue that has scared investors -- a concern that I fully expect to be resolved by at least the end of the third quarter.

Bottom line

Each of these companies have had some struggles at some point this year, but all have excellent fundamentals with even better businesses. Remarkably, I see each as having at least 20% more upside from their current trading levels.

Cisco and HP, trading at price-to-earnings ratios of 11 and 8 respectively, will likely reach $25 and $30 by year's end. For Microsoft, I continue to maintain a $40 target aided by its Windows 8 launch and there is no doubt that this event will also propel Intel to possibly $35.

For Qualcomm, the stock is a steal at $55 as its supply-chain challenges have been considerably overblown. Value investors who jump in on this current weakness should expect to have a $72 stock by the end of the year.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

At the time of publication, the author was long CSCO and AAPL.

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