Markets rallied on Wednesday following a joint statement from Angela Merkel and Nicolas Sarkosy pledging to aid Greece.
Bearish skepticism about a Greek default combined with other concerns have largely been aggressively priced in. As a result, even the smallest political actions and rumors have sent the markets back and forth with anticipation.
The market's tight connection to the political arena made Wednesday's announcement a bullish turn-around for many. But bears beware: Investors watched as the optimism quickly left oversold stocks subject to short squeezes from short-sellers.
This sudden bullish optimism is not permanent. More news, good and bad, is likely to price in over the coming days and weeks.
"Unfortunately, this one-day wonder does not tell us too much about the future. The markets were very oversold, and due for a rally at some point. The trading goddess decided for one reason or the other that this point was yesterday," said Philippe Gijsels, of BNP Paribas Fortis Capital Markets in Brussels to CNBC.com.
But Gijsels points out that the market's extreme level of oversoldness means capitulation -- a point where all bad news has been priced in and the market begins to rebound -- could be on the horizon. He argues that when a strong rally does hit the market, it will likely be sharp, quick, and "[won't] look back."
So, which stocks appear to be most undervalued? For ideas, we can ran a screen on companies that appear to be undervalued relative to the price to earnings growth (PEG) ratio.
All of the stocks mentioned below have PEG ratios below 1, meaning that they are trading at a discount relative to projected earnings growth.
In addition, all of these companies have proven themselves to be more profitable than their competitors, and have also seen significant institutional buying during the current quarter.
Big money managers seem to think these profitable stocks are undervalued, and ready for a bounce -- do you agree? (Click here to access free, interactive tools to analyze these ideas.)
1. Las Vegas Sands
2. Urban Outfitters
5. Cellcom Israel
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Becca Lipman and Eben Esterhuizen do not own any of the shares mentioned above. Institutional data sourced from Fidelity, all other data sourced from Finviz.
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