mariahdrx: Being Right or Making Money

If you’re looking for investing strategies to help identify undervalued stocks with strong cash holdings, look no further. Your education starts here.

We put together a list of potentially undervalued and fiscally sound stocks by finding names that met all of the following conditions:

- Trailing twelve month (TTM) net profit margin is at least 30% higher than the net profit margin in the previous period. Net profit margin (TTM) is also above 10%.
- Current price is 20% or more below its target price
- Cash and cash equivalents over the recent quarter greater than long-term debt.
- Market cap above $500M

Lastly, we narrowed down our results by identifying the stocks that have experienced significant levels of net institutional buying over the current quarter.

Investing can be complicated, especially when so many accounting terms are being used. If any of the terms above don’t make sense to you, have no fear. Let’s take a look at what each of these metrics mean and why they are important:

Cash and cash equivalents exceeding long-term debt: It is always good for a company to have solid holdings of cash and cash equivalents. Cash is the most liquid asset because it can easily be used to pay off debts, taxes, dividends, etc. in a pinch, while other assets like property and inventory take time and/or effort to convert to cash, a concept known as "illiquidity".

When a company has more cash than debt, risks to stockholders are lessened because these companies are better prepared to carry their debt and more likely to pay out dividends.

Increasing Net Profit Margin: Net profit margin describes how much profit a company keeps for every $1 it generates in revenues. It is calculated as net profits divided by sales and is reported as a percentage. Increased net profit margin is a good thing because it means the company is retaining more earnings and implies that it is in better control of its costs.

Trailing twelve months (TTM): TTM is an indication that the calculated data has come from the last twelve months. For example, if data released in July 2045 is "TTM" (ie, P/E TTM or "Trailing P/E"), this means the price and the earning-per-share data comes from the twelve-month period of August 2044 to July 2045.

Target Price: Analyst target prices can be very useful guides for investors. The target price is a price level set by analysts that, based on their data and estimates, represents their predictions for that company in the upcoming year. Because analysts often have different opinions, we use the average analyst target price. Although target price is upwardly biased, a steep discount from this number can signal that the company has more value to price in (meaning, the stock price may rise).

Institutional Buying: Institutional investors are also known as "big money" investors or managers. They represent big pools of money such as investment banks, pension funds, mutual funds, hedge funds, endowment funds, etc. When they invest in stocks, they can invest hundreds of thousands of dollars or more at one time.

Regular investors pay attention to what institutional investors do because it is easy enough to assume that the big money managers know what they are doing -- or at the very least know more than the average investor. This is why these investors are also sometimes referred to as "smart money.” Note, investors should never blindly trust analysts or institutional investors or anybody else. Use information on institutional investing with other research before making any investing decisions.

Given the data points, do you think these companies will reach their target price? Are institutions making the right moves? Use the list below as a starting-off point for your own analysis. Click on the heat maps to access free, interactive tools to analyze these ideas

Data sorted in alphabetical order.

Analyze These Ideas (Tools Will Open In A New Window)
1. Access a thorough description of all companies mentioned
2. Compare analyst ratings for all stocks mentioned below
3. Visualize annual returns for all stocks mentioned

1. GeoResources, Inc. (GEOI): Independent Oil & Gas industry. Market cap at $607M. Net profit margin (TTM) at 21.61% vs. prior net profit margin (TTM) at 0.17%. Recent price closing at $23.84, compared to target price of $31.86 (implies a potential upside of 33.63%. Cash and equivalents (for recent quarter) at 42.15M vs. long-term debt of $0. Net institutional shares purchased over the current quarter represent 42.74% of the 19.42M share float.

2. HFF, Inc. (HF): Mortgage Investment industry. Market cap at $512M. Net profit margin (TTM) at 12.79% vs. prior net profit margin (TTM) at 0.09%. Recent price closing at $14.23, compared to target price of $18.00 (implies a potential upside of 26.49%. Cash and equivalents (for recent quarter) at 72.34M vs. long-term debt of $209K. Net institutional shares purchased over the current quarter represent 12.28% of the 28.51M share float.

3. Hollysys Automation Technologies Ltd (HOLI): Industrial Electrical Equipment industry. Market cap at $512M. Net profit margin (TTM) at 16.46% vs. prior net profit margin (TTM) at 0.04%. Recent price closing at $9.41, compared to target price of $14.84 (implies a potential upside of 57.68%. Cash and equivalents (for recent quarter) at 102M vs. long-term debt of $33.17M. Net institutional shares purchased over the current quarter represent 10.38% of the 31.78M share float.

4. LogMeIn, Inc. (LOGM): Information Technology Services industry. Market cap at $909M. Net profit margin (TTM) at 17.14% vs. prior net profit margin (TTM) at 0.12%. Recent price closing at $37.78, compared to target price of $50.43 (implies a potential upside of 33.48%. Cash and equivalents (for recent quarter) at 176M vs. long-term debt of $0. Net institutional shares purchased over the current quarter represent 9.81% of the 20.38M share float.

5. Mercury Computer Systems Inc. (MRCY): Computer Peripherals industry. Market cap at $573M. Net profit margin (TTM) at 13.96% vs. prior net profit margin (TTM) at 0.07%. Recent price closing at $18.99, compared to target price of $25.00 (implies a potential upside of 31.65%. Cash and equivalents (for recent quarter) at 156M vs. long-term debt of $86K. Net institutional shares purchased over the current quarter represent 20.56% of the 27.73M share float.

6. Optimer Pharmaceuticals, Inc. (OPTR): Biotechnology industry. Market cap at $553M. Net profit margin (TTM) at 14.19% vs. prior net profit margin (TTM) at -40.69%. Recent price closing at $11.94, compared to target price of $18.67 (implies a potential upside of 56.34%. Cash and equivalents (for recent quarter) at 180M vs. long-term debt of $0. Net institutional shares purchased over the current quarter represent 12.37% of the 42.04M share float.

7. TransGlobe Energy Corporation (USA) (TGA): Independent Oil & Gas industry. Market cap at $911M. Net profit margin (TTM) at 17.98% vs. prior net profit margin (TTM) at 0.08%. Recent price closing at $12.41, compared to target price of $16.77 (implies a potential upside of 35.12%. Cash and equivalents (for recent quarter) at 8.63M vs. long-term debt of $56.73M. Net institutional shares purchased over the current quarter represent 14.71% of the 69.33M share float.

(List compiled by Becca Lipman)

1. The President Declares He Will Shoot His Hostages

Everyone is using the hostage metaphor these days regarding the debt ceiling. Barack Obama started it back in December when he called the GOP hostage takers before the GOP gave him everything he wanted.

Well, I hope the GOP noticed Barack Obama yesterday upped the ante and declared his willingness to shoot his hostages, i.e. senior citizens. Yes, if the GOP dares to hold the line on spending cuts, Barack Obama will balk, the debt limit will not be raised, and Obama will refuse to pay senior citizens.

Jim Pethokoukis notes a Goldman Sachs report showing there will be plenty of money flowing into the treasury in August for the government to pay its debt obligations, pay social security obligations, pay military obligations, and avoid default. But Obama won’t let facts stand in the way of starving senior citizens to score political points against the GOP.

Of course, it is not just Obama willing to score political points. Mitch McConnell wants to give Barack Obama the right to automatically raise the debt ceiling. The only caveat is McConnell wants everyone to know it’ll be Obama who does it, not the GOP. Just how bad is McConnell’s plan? After David Hauptmann, a staffer in McConnell’s office, sent out an email linking to a National Review Online column that said Grover Norquist “supported” Mitch McConnell’s capitulation, Americans for Tax Reform rapidly sent out a press release saying Norquist did not support the plan, just “the goals.” They also asked NRO to clarify.

Undeterred, McConnell enlisted the support of the Wall Street Journal’s editorial page, which came out swinging not just in favor of McConnell’s plan, but also pretty directly against me. I can console myself that they also supported McConnell’s push for TARP.

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2. Mitch McConnell Just Proposed the “Pontius Pilate Pass the Buck Act of 2011?

Consider the Associated Press’s headline right now: “GOP Leader McConnell proposes giving Obama new power for automatic debt limit increase”

Mitch McConnell is right now talking about making a historic capitulation. So fearful of being blamed for a default, McConnell is proposing a compromise that lets Barack Obama raise the debt ceiling without making any spending cuts at all.

Consider sending McConnell a weasel as testament to his treachery. His address is 601 W. Broadway, Room 630, Louisville, KY 40202 and the phone number is (502) 582-6304.

McConnell’s idea is to make the debt ceiling automatic unless Congress, by a 2/3 vote blocks the increase. Oh yes, he put a salve on it by dressing it up in tough talk that, to quote the Wall Street Journal, “[a] ‘eal solution’ to U.S. fiscal problems isn’t possible as long as President Barack Obama remains in office.” So since no “real solution” is possible, McConnell proposes to go Pontius Pilate and wash his hands of spending, blaming Obama while doing nothing himself.

Here is how the plan would work.

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3. Mr. President, What Are Your Priorities?

President Barack Obama has announced that he may not be able to mail Social Security checks out on 3 August if he has not been given an increased debt ceiling to borrow more money for the government. The blackmail attempts have officially begun. Give us more money now, or watch the entitlement recipients in YOUR Congressional District start to get it.

According to James Pethokoukis, the US Treasury is not precluded from specifically making the next Social Security payment by actual liquidity. “Social Security payments Treasury needs to make on Aug 3. $22 billion. Treasury cash balance on Aug. 3: $74 billion.”

This implies these payments would be stopped as a result of fiscal priorities greater than making Social Security payments that totaled an amount greater than the $52Bn that the Treasury would have on its books as of 3 August 2011. As concerned American citizens, we are owed a dutiful and factual accountings of what those specific priorities happen to be. This is, after all, the most honest and open administration in the history of terrestrial democracy. Isn’t it?

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4. Random Acts of Vandalism Cause Teamsters To Postpone Funeral Directors’ Strike

As late as Monday, the Teamster-represented funeral directors, embalmers and livery drivers from four Chicago-area nursing home were prepared to walk out on strike on Tuesday over an impasse in negotiations with Service Corporation International.

However, when vandals struck three out of four of the funeral homes that were to have been targeted by the strike, the Teamsters hastily postponed walking out on the dead.

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Friday, July 29, 2011

Being Right or Making Money

1. The President Declares He Will Shoot His Hostages

2. Mitch McConnell Just Proposed the “Pontius Pilate Pass the Buck Act of 2011?

3. Mr. President, What Are Your Priorities?

4. Random Acts of Vandalism Cause Teamsters To Postpone Funeral Directors’ Strike

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