Five stocks that look like they’re ready to bounce

 

Trying to time the market is a tough job. As investors, we try to pick the best time to get in and out of stocks, but market timing is close to impossible to figure out. For long-term investors, timing is not quite as important, since positions are expected to be held for the long haul, but it becomes much more important for short-term traders that are seeking quick returns.

I tend to lean more on the side of long-term investing, seeking stocks that I can purchase and hang on to for years. That makes timing is less important, but even still I strive to enter into positions at the best time possible.

In some cases, this means buying a stock that has already made a significant move to the upside. There is absolutely nothing wrong with buying a stock near its high if you believe that there is additional upside for the stock.

On the other hand, sometimes buying a stock near its lows is a horrible idea. Generally speaking, when Wall Street sells of a stock, it does so for a reason, and every investor at one time or another has lost money trying to “catch a falling knife”, only to see the position continue to move lower.

Having said that, there are always opportunities to find beaten up stocks that have a good chance of rebounding and erasing recent losses. These trades are inherently more risky, but with the risk come higher reward potential.

This week I want to take a look at a handful of stocks that have recent hit 52-week lows that appear to have bottomed out.

Bear in mind, that in each instance, the underlying company has shown some sort of weakness, so there is a chance that the security could resume its downward momentum, but there are also clear indicators that the worst is past, and shares should regain momentum and trend higher moving forward.

If you have been waiting on a good time to get into any of these stocks, that time may be now, but as always, be sure to do your own homework, and make sure you are willing to assume the risk associated with these under-performing stocks.

Jack in the Box

Fast food operator Jack in the Box (JACK) recently rebounded from a six-month sell off after analysts at Morgan Stanley lifted their rating on the stock to “overweight” from “equal weight”. In addition to the rating upgrade, the research firm also set a very bullish $89 price target on the stock. With shares currently trading at $66.95, the price target suggests 33% upside potential. Morgan Stanley acknowledged the short-term risk to the company due to increased promotions in the sector, but believes the amount of promotions being run by the company’s competitors is unsustainable at the current level. The stock has a P/E of 23.5, which on the surface appears a little high for a stock that has sold off as sharply as JACK has over he last year, but analysts forecast earnings to rise 17.7% this year, and by 13.6% next year. Given the high earnings growth forecast, the valuation is acceptable, and should not prevent the stock from trending higher as long as the company is able to hit the forecast.

JACK160412

Chart courtesy of www.stockcharts.com

General Dynamics

Defense and aerospace contractor General Dynamics (GD) is trading 9.5% above its 52-week low, with the stock trending higher over the last two weeks. From a technical view, we see GD recently formed a double bottom, a clear bullish signal. As expected the stock moved higher following the formation. There will be some resistance around $34.50, but should the stock cross through that level, that will become the stock’s new support level. From a valuation perspective, GD looks attractive, with a P/E of just 14.6. The low valuation, coupled with the fact analysts forecast earnings growth of 3.2% this year, and 7.4% next year should help the stock erase more of its recent losses. GD is now trading at $133.44, which is 19.3% below the average price target for the stock. Another reason to get behind the stock is its 2.3% yield, and 18-year streak of dividend increases.

GD160412

Chart courtesy of www.stockcharts.com

Brinker International

Restaurant chain operator Brinker International (EAT) ran into trouble last year, but the worst now appears to be behind the stock. Shares started to rebound in December, but once again moved lower in March. The stock recently was able to find solid support around $45.75, and the double bottom pattern is a clear bullish indicator that the stock is poised to move higher. Supporting this view is the stock’s valuation. EAT has a low P/E of 14.3, and analysts forecast earnings growth of 15.2% this year, and 10.4% next year. As long as the company is able to hit the forecast growth, the stock will move higher. Analysts expect more upside, setting a price target of $53.67 on the stock, which is 13.7% higher than the current price. The stock has a 2.7% dividend yield, which should keep dividend investors interested.

EAT160412

Chart courtesy of www.stockcharts.com

Canon Inc.

Business equipment maker Canon Inc. (CAJ) has recently begun to trend higher after a prolonged downward trend. The stock hit a 52-week low in February, but shares have rallied 9.7% from their low, and based on valuation and earnings growth the stock should continue to move higher. The stock has a P/E of 16.2, and analysts forecast earnings growth of 17.4% for the year. If the company is able to hit the growth forecast, the stock should trend higher. CAJ is now trading at $29.18, and analysts have an average price target of $35.24 on the stock, suggesting nice upside for investors that get in at the current level. The technicals clearly broke down over the last year, but there are some positive signals to the chart at this time. After rallying in February and March, the stock once again moved lower, but the recent low was higher than the previous low, which is a bullish indicator. CAJ is going to face stiff resistance around the $30 level, but if it can break through that level, and hold, then $30 will form a new support level and the stock should trend higher to the next resistance level around $32.00. CAJ is a high-yield stock, offering a 4.6% dividend yield that should attract dividend hunters and help boost the stock higher.

CAJ160412

Chart courtesy of www.stockcharts.com

Toyota Motor

Japanese automaker Toyota Motor (TM) recent hit a 52-week low, but the valuation has reached a point where the downside is very limited at this point. The stock has a P/E of just 7.7, with analysts predicting earnings growth of 7.4% this year, and 2.5% next year. Even with modest earnings growth, the stock should trend higher due to the incredibly low valuation. TM currently trades at $101.07, but on average analysts have a price target of $118.18, suggesting 17.0% upside potential. A big problem for the company right now has been a consumer shift towards SUVs. Low gas prices have hurt Toyota’s sedan sales, but oil will not remain low forever, and when gas prices do start to rise again, SUV sales will shrink, and Toyota’s more fuel-efficient sedans will benefit. Toyota is likely to boost SUV production in the short-term, and will look at introducing more models that will attract new customers. A strengthening yen could hurt the company, but the long-term outlook is attractive given the stock’s incredibly low valuation. Technically, the stock recently formed a double bottom, which is an indicator that a rebound could be on the horizon. TM also offers a 3.2% dividend yield.

TM160412

Chart courtesy of www.stockcharts.com

Symbols: CAJ EAT GD JACK TM
Michael Fowlkes

Michael Fowlkes

Michael Fowlkes is a financial writer who has been with the Fresh Brewed Media family since 2004. Over the course of his tenure with Fresh Brewed Media, he has worn many hats, including portfolio manager, options analyst, and writer. Michael received his undergraduate degree from Virginia Tech in Accounting and got his start in finance working as a stock trader for six years at Chase Investment Counsel in Charlottesville, Va.

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