7 Oversold Stocks Ready to Bounce, 2 to Avoid

NEW YORK (TheStreet) -- Knowing when to pull the trigger on a falling stock is not for the faint of heart. There is a valid reason why Wall Street insiders call value investing "catching a falling knife."

One person's losing trade is another's bargain buy, if you know when it's the right time to strike. We may not be able to predict the future, but we can predict the odds of a stock bottom based on previous charting patterns.

As long as a company is profitable, at some point a dropping stock price will collide with value buyers and investors no longer willing to give up their shares. When sellers run out of a desire to liquidate their shares, is when we see the price stabilize.

On July 27 I wrote this article describing over sold stocks at that time. Let's take a look to see how they performed. I will use the closing price on July 27 as the starting price, and closing on Monday as the change reference point. All returns are rounded down.

TRW Automotive (TRW) + 22.4%
Tiffany (TIF) + 1.5%
Tyson Foods (TSN) +3.9%
Kroger (KR) +2.6%
Las Vegas Sands (LVS) +7%
Boston Scientific (BSX) +5.5%
Safeway (SWY) +5.2%
Arch Coal (ACI) +6.1%
Dell (DELL) +2.5%
Hewlett-Packard (HPQ) +5.6%

I don't always get it right 10 out of 10, but I hope you will follow this list of stocks below and see what the future holds for them.

HK Chart HK data by YCharts

Halcon Resources (HK)

Background: Halcon Resources is an energy company engaged in the acquisition, exploration and development of onshore oil and natural gas properties in the United States. The company trades an average of 3.8 million shares per day with a market cap of $1 billion.

52-Week High: $13.35

52-Week Low: $1.95

Book Value: $4.73

Analysts continue to believe in the direction Halcon is headed. Four of the four analysts covering the company give a buy recommendation.

From a technical perspective, the 60-day moving average (some use a 50-day) is above the 200-day moving average and is somewhat bullish. Recently, HK broke through the resistance trend line. Also, the chart is oversold on the daily and weekly time frame.

In the last month, the stock has really taken a turn for the worse. Shares have crumbled 12.3% in the last month of trading. This should have washed out most of the large sellers leaving strong hands holding.

Revenue year-over-year has decreased slightly to $107.88 million in fiscal 2011, compared to $112.33 million in the previous year.

The short interest is markedly elevated and short sellers have done well in the past couple of months. The current float short is 14.8%, and any large catalyst could begin a short squeeze.

HK Free Cash Flow TTM Chart HK Free Cash Flow TTM data by YCharts

DV Chart DV data by YCharts

DeVry (DV)

Background: DeVry owns and operates DeVry Institutes of Technology, Denver Technical College, Keller Graduate School of Management and Becker Conviser CPA Review. DeVry trades an average of 1.3 million shares per day with a market cap of $1.3 billion.

52-Week High: $46.92

52-Week Low: $18.15

Book Value: $21.18

A few days after the gap down in price at the end of July DeVry became oversold. The price has stabilized and should trend higher from here. Decry is oversold on the weekly and the daily price charts.

DeVry pays a dividend which appears safe based on expected earnings. Investors are receiving 30 cents in dividends for a yield of 1.56%.

The trailing 12-month price-to-earnings ratio is 6.1, the mean fiscal year estimate price-to-earnings ratio is 9.1, based on earnings of $2.11 per share this year.

Shares have crumbled 34% in the last month of trading. Most of the loss was on the one day after earnings. Big short interest and short sellers expect the price to keep falling. The current float short is 13.6%, and it's enough to create a short squeeze.

DV Free Cash Flow Chart DV Free Cash Flow data by YCharts

BBG Chart BBG data by YCharts

Bill Barrett (BBG)

Background: Bill Barrett, headquartered in Denver, explores for and develops oil and natural gas in the Rocky Mountain region of the U.S. Bill Barrett trades an average of 1.6 million shares per day with a marketcap of $1 billion.

52-Week High: $49.35

52-Week Low: $15.42

Book Value: $25.67

Shares moved 5.6% higher in the last month, and the next level of resistance is the 200-day moving average. $26 appears to be a reasonable next target price to aim for.

Bill is mildly oversold on the daily chart but clearly oversold on the weekly chart. Moving up to a price target of $26 will take some time, but provides a nice risk-reward level.

Bill has eight buy recommendations out of 14 analysts, and one recommends selling.

The trailing 12-month price-to-earnings ratio is 22.3, the mean fiscal year estimate price-to-earnings ratio is 52.8, based on earnings of 40 cents per share this year.

The current float short is 19.6%. With that said, as the price moves higher, the short sellers will feel greater pressure to cover.

BBG Free Cash Flow Chart BBG Free Cash Flow data by YCharts

EA Chart EA data by YCharts

Electronic Arts (EA)

Background: Electronic Arts operates in two principal business segments globally: EA Core business segment involved in the creation, marketing and distribution of entertainment software; and the EA.com business segment involved in the creation, marketing and distribution of entertainment software that can be played or sold online. Electronic Arts trades an average of 7.6 million shares per day with a market cap of $4.1 billion.

52-Week High: $26.13

52-Week Low: $10.77

Book Value: $8.03

Price to Book: 1.63

Analysts somewhat approve the direction EA is headed, with 12 of the 20 analysts covering the company giving a buy recommendation.

The trailing 12-month price-to-earnings ratio is 42.9, the mean fiscal year estimate price-to-earnings ratio is 20.7, based on earnings of 63 cents per share this year.

In the last month, the stock has really moved higher with a 11.7% increase. The move higher brings the current price to near the oversold level on the daily price chart. The weekly price chart remains oversold, and I put a price target of $15.90 on the shares.

The short interest based on the float is small and not a big concern. Short interest is 3.5%. Not really enough to cause much of a squeeze, but demonstrates that the smart money isn't betting shares are likely to continue falling.

EA Free Cash Flow Chart EA Free Cash Flow data by YCharts

DECK Chart DECK data by YCharts

Deckers Outdoor (DECK)

Background: Deckers designs, manufactures and markets innovative, function-oriented footwear and apparel that have been developed for high-performance outdoor, sports and other lifestyle related activities, as well as for casual use. Deckers trades an average of 1.4 million shares per day with a market cap of $1.8 billion.

52-Week High: $118.90

52-Week Low: $39.90

Book Value: $19.44

Price to Book: 2.4

The trailing 12-month price-to-earnings ratio is 10.3, the mean fiscal year estimate price-to-earnings ratio is 10.1, based on earnings of $4.47 per share this year.

The company has rising revenue year-over-year of $1.38 billion in fiscal 2011 compared to $1 billion in the previous year.

Wow, the short interest is altitudinous and is a strong warning that short-sellers expect the share price to fall considerably. The short interest is 24.8%.Even with the large short interest, the technical analysis of the chart put the odds in favor of upside over continued downside, at least for the time being.

DECK Free Cash Flow Chart DECK Free Cash Flow data by YCharts

TC Chart TC data by YCharts

Thompson Creek Metals (TC)

Background: Thompson Creek Metals (formerly Blue Pearl Mining) is one of the largest publicly traded, pure molybdenum producers in the world. The company owns the Thompson Creek open-pit molybdenum mine and mill in Idaho, a75% share of the Endako open-pit mine, mill and roasting facility in northern British Columbia and a metallurgical roasting facility in Langeloth, Pa. Thompson trades an average of 2.3 million shares per day with a market cap of $406 million.

52-Week High: $9.50

52-Week Low: $2.41

Book Value: $10.47

Six of the 10 analysts covering the company give a buy recommendation. Thompson made a new 52-week low Tuesday. It would appear at least six of the analysts have it wrong now.

Shares tripped and fell about 9.5% during the last ugly month of trading. The shares have also broken through support this week. Of all the companies in this list, Thompson is the one I am least confident on. I think holding out for a buy price near $2 a share will lower the risk level if shares spike down.

The short interest is markedly elevated and should be treated as a red flag that short sellers expect the price to fall. The current float short is 12.9%.

TC Free Cash Flow Chart TC Free Cash Flow data by YCharts

TTWO Chart TTWO data by YCharts

Take-Two Interactive Software (TTWO)

Background: Take-Two Interactive Software is a leading worldwide developer, publisher and distributor of interactive software games. The company's software operates on multimedia personal computers and videogame console platforms. The company was founded in 1993 and is headquartered in New York. Take-Two Interactive trades an average of 3.5 million shares per day with a market cap of $816 million.

52-Week High: $16.99

52-Week Low: $7.37

Book Value: $5.24

Price to Book: 1.77

Ten of the analysts rate TTWO a buy or strong buy out of 14 analysts. I find it hard to understand how so many still believe it's a buy, but I don't give out buy recommendations as easy as most broker analysts.

Shares have moved higher in the last month, with a 5.5% improvement. Shares are oversold on the daily and weekly charts. The target is not that high for this one. The profit target is about $9.74

The short interest is not small. The current float short is 15.4%; 15% is not huge, but at the same time it is enough to let the world know that short-sellers believe more downside is expected.

TTWO Free Cash Flow Chart TTWO Free Cash Flow data by YCharts

PLCM Chart PLCM data by YCharts

Polycom (PLCM)

Background: Polycom develops, manufactures and markets a full range of high-quality, media-rich communication tools and network solutions. The company's broadband communication solutions enable business users to immediately realize the benefits of video, voice and data over rapidly growing converged networks. The company trades an average of 2.2 million shares per day with a market cap of $1.7 billion.

52-Week High: $26.11

52-Week Low: $7.45

Book Value: $8.02

Price to Book: 1.22

Analysts are more or less side-stepping this one like a politician dancing the Washington two-step. Twelve out of 14 analysts rate Polycom a hold, two recommend this as a buy and no analysts recommend selling.

Polycom closed Tuesday at $9.32, a price that technically breaks the support level of the trend line by a very small amount. The nine-day moving average is still providing support and intact, but I would hold off until it proves a bottom has been put in.

The trailing 12-month price-to-earnings ratio is 13.9, the mean fiscal year estimate price-to-earnings ratio is 33.0, based on earnings of 29 cents per share this year.

The current proportion sold short based on the float is 7%. I would not short here, but this is one of two companies in this article I would not enter a long.

PLCM Free Cash Flow Chart PLCM Free Cash Flow data by YCharts

FB Chart FB data by YCharts

Facebook (FB)

Background: Facebook operates a social networking website worldwide. The company's products for users are free of charge and available on the Web, mobile Web, and mobile platforms, such as Android and iOS. Its website enables users to connect, share, discover, and communicate with each other. Facebook trades an average of 39.8 million shares per day with a market cap of $43.6 billion.

52-Week High: $45.00

52-Week Low: $19.82

Price to Book: 3.5

Fourteen of the 27 analysts covering the company give a buy recommendation, 12 analysts rate it a hold and one has given it a sell rating.

I get asked a lot about Facebook by my noninvestor friends. At first it was, "Should I invest in the Facebook IPO?" and now it has moved to "Is Facebook a buy yet?" In No Friend of Facebook I suggest waiting until Facebook is in the lower teens, and even then I would only enter using options as a hedge. Selling puts instead of an outright buy is a lot more attractive than a straight position from my seat.

I have remained bearish since before the IPO, and while I have shorted covered calls it was only for two days to capture low risk option premium. Shares have crumbled 29% in the last month of trading.

TheStreet'sTimothy Collins writes about Facebook in his article Be Careful With the 'Easy' Plays.

FB Free Cash Flow Chart FB Free Cash Flow data by YCharts

I use Zacks.com, WSJ.com, Tradestation, and Reuters for my data. P/E is generally adjusted P/E based on an average number of shares.

At the time of publication the author did not hold a position in any stock mentioned.

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

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