Can We Get Much Higher? 5 Rallying But Still Undervalued Stocks

James Dennin, Kapitall: These undervalued stocks are rallying well above their 200 day SMA. Can they get much higher?

While the stock market took a slight dip in January, there are still many analysts who think that it will still go much higher in 2014, as much as 7 or 8% depending on how the rest of the economy does throughout the spring and summer months.

The reason behind their thinking has to do with the technical performance of stocks in the year so far. 

The simple moving average (SMA) of a stock is the average closing price for the stock over a set period of time. As of now, the three most commonly cited SMAs, the SMA 50, 100, and 200 — are all moving in more or less perfect tandem. 

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Even when stocks receded, the average SMA 50 never dipped below the SMA 100. This indicates that the momentum on the stock market hasn't really abated if you look outside the day-to-day performance of each company. 

Earnings will drive stock market growth this year. Without the Fed buying assets to drive up stock prices their only support going forward will be better earnings. Fortunately as the economy improves this will get more and more likely. We decided to run a screen to see which companies were rallying but also seemed likely to grow their earnings.

To do that we ran a screen on stocks that trade on the S&P 500 index. We wanted companies that are rallying, so we screened for stocks that trade at least 15% above their SMA 200. Then, to narrow the screen further we looked for a mismatch between earnings per share (EPS) and price

Earnings per share is the ratio between a company's earnings and the amount of shares in the stock's float. When EPS goes up it means that the company is doing a better job of generating more earnings for each share of equity. When EPS goes up faster than the stock's price it's called an EPS/Price mismatch. This indicates that the company might be undervalued and could support a higher stock price. 

Using these two metrics, we were left with 5 stocks on our list.  

Click on the interactive chart to view data over time. 

1.Gilead Sciences Inc. ( GILD):Engages in the discovery, development, and commercialization of therapeutics for the treatment of life threatening diseases worldwide. Market cap at $121.48B, most recent closing price at $79.58.

The EPS estimate for the company's current year increased from 3.32 to 3.79 over the last 30 days, an increase of 14.16%. This increase came during a time when the stock price changed by 1.56% (from 81.52 to 82.79 over the last 30 days). 

SMA200: 19.37%
 

 

2.Harman International Industries Inc. ( HAR):Engages in the development, manufacture, and marketing of audio products and electronic systems primarily in the United States, Germany, and other parts of Europe. Market cap at $7.3B, most recent closing price at $109.09.

The EPS estimate for the company's current year increased from 3.98 to 4.23 over the last 30 days, an increase of 6.28%. This increase came during a time when the stock price changed by 2.34% (from 102.34 to 104.73 over the last 30 days). 

SMA200: 46.31%
 

 

3.Juniper Networks, Inc. ( JNPR):Designs, develops, and sells products and services that provide network infrastructure to create environments for the deployment of services and applications over a single network. Market cap at $13.14B, most recent closing price at $26.26.

The EPS estimate for the company's current year increased from 1.45 to 1.54 over the last 30 days, an increase of 6.21%. This increase came during a time when the stock price changed by -4.05% (from 27.87 to 26.74 over the last 30 days).

SMA200: 21.87%
 

 

4.Raytheon Co. ( RTN):Provides electronics, mission systems integration, and other capabilities in the areas of sensing, effects, and command, control, communications, and intelligence systems, as well as mission support services in the United States and internationally. Market cap at $31.67B, most recent closing price at $101.27.

The EPS estimate for the company's current year increased from 6.38 to 6.93 over the last 30 days, an increase of 8.62%. This increase came during a time when the stock price changed by 6.55% (from 91.89 to 97.91 over the last 30 days).

SMA200: 25.31%
 

 

5.Thermo Fisher Scientific, Inc. ( TMO):Provides analytical instruments, equipment, reagents and consumables, software, and services for research, manufacture, analysis, discovery, and diagnostics. Market cap at $49.25B, most recent closing price at $126.67.

The EPS estimate for the company's current year increased from 6.01 to 6.81 over the last 30 days, an increase of 13.31%. This increase came during a time when the stock price changed by 8.31% (from 114.99 to 124.54 over the last 30 days). 

SMA 200: 27.5%
 

( List compiled by James Dennin, a Kapitall Writer. Analyst ratings sourced from Zacks Investment Research; all other data sourced from Finivz.)

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