Here at The Motley Fool, we're always on the lookout for undervalued stocks, and as of late, the market has been overwhelming us with opportunities.
I took time this past week to run a quick stock screen using the Motley Fool CAPS Screener for companies that are down more than 50% from their 52-week highs but have exhibited both revenue and earnings growth averaging 15% or greater over the past three years. As you can imagine, with the financial sector on the verge of collapse in 2008, not too many stocks passed this initial screen. Out of the list of 28 possible candidates, I weeded out the micro caps and arbitrarily came to three names that you need to get onto your watchlist.
Trina Solar (NYSE: TSL)
For those of you clamoring to remind me that there's a glut of solar producers out there, relax … I'm fully aware. Within the past month, private solar cell producer Solyndra filed for bankruptcy protection, while often spotlighted solar manufacturer Evergreen Solar also caved to weakening demand. Still, plenty of bullish signs remain.
Like Trina, many other solar manufacturers have seen earnings estimates drop considerably, including JA Solar (Nasdaq: JASO), Suntech Power Holdings (NYSE: STP), and LDK Solar (NYSE: LDK). But investors may have overreacted in sending these companies lower. In the U.S. and Japan, demand for alternative forms of energy is growing dramatically, while in Europe, the big question marks surrounding German demand have been answered, at least for now. As competition decreases due to bankruptcy filings, companies with strong balance sheets, like Trina, should be the first to rebound.
AsiaInfo Holdings (Nasdaq: ASIA)
AsiaInfo Holdings is the largest telecom IT software vendor in China and should be a company that benefits greatly as telecom bundling packages reach a wider swath of China’s population.
Although AsiaInfo currently services all three of China's major telecom providers, as fellow Fool Rich Duprey points out, China Mobile (NYSE: CHL) accounted for 61% of AsiaInfo's revenue last year. While I can't say I'm thrilled with this much of the company's revenue stream being tied to one company, I would be comforted as a shareholder with the knowledge that all three Chinese telecoms are using its software. The company also has a squeaky-clean balance sheet, a long-term growth rate of 12%, and is trading at a forward earnings multiple of 6. It's looking very undervalued at its current price.
VanceInfo Technologies (NYSE: VIT)
Yes, another Chinese company -- don't hyperventilate. Also based out of China, VanceInfo Technologies is an IT company that has been plagued by macroeconomic weakness, rising wages, and a murky near-term economic outlook.
Even so, it's difficult to ignore a company that has grown its revenue at an average of 48.6% over the past three years while the industry has averaged growth of just 3.6%. After losing three-quarters of its value in less than a year, VanceInfo is now trading at a forward earnings multiple (9.9) lower than at any time in its history. Like AsiaInfo, VanceInfo has a debt-free balance sheet and is slated to grow at a mind-numbing 22% over the next five years. As long as the company can remain solidly profitable, this may be an opportunity too enticing to pass up.
It all starts with you
Everything starts with research. If you haven't already established a watchlist to keep track of your favorite stocks, perhaps now is the time to start by adding Trina Solar, AsiaInfo Holdings, and VanceInfo Technologies. Your Motley Fool watchlist is free and can help you keep track of the latest news and opinions surrounding your favorite companies.
What companies have you recently added to your watchlist? Share them in the comments section below.
