Interested in finding potentially undervalued stocks? If so, you may consider yourself among the "value investors," those who search for stocks that they believe are trading below their fair value. The assumption is that eventually the stock price will rise to match its fair value, generating a handsome profit.
Relative Strength Index (RSI)
One way to identify undervalued companies is to follow technical indicators, which use price and volume data to determine when trading trends occur.
One particularly interesting technical indicator is the relative strength index (RSI).
RSI is a momentum indicator that measures the speed and change of stock price movements. It ranges from 0 to 100, with readings above 70 indicating overbought behavior and readings below 40 indicating oversold behavior. Truly oversold stocks can be expected to rise to a fairer value in the near future, and vice versa for overbought stocks.
Business section: Investing ideas
To demonstrate these ideas, we ran a screen on large-cap stocks for those that are technically oversold, with RSI(14) below 40. RSI(14) is one common form of the index, which is measured with data from the last 14 days.
To narrow down our list of oversold stocks, we took a look at the buying trends of company insiders. Insiders, such as members of the company's board and upper management, know more about their companies than any others investors -- if they are optimistic enough to personally buy company stock, it's a sign to take a second look.
Do you think these insider favorites will soon rise to a fairer value? (Click here to access free, interactive tools to analyze these ideas.)
1. R.R. Donnelley & Sons Company
2. EXCO Resources
3. Theravance: Engages in the discovery, development, and commercialization of small molecule medicines for various therapeutic areas, including respiratory disease, bacterial infections, and central nervous system (CNS)/pain. RSI(14) indicator at 38.78. Over the last six months, insiders were net buyers of 126,584 shares, which represents about 0.24% of the company's 51.96M share float.
5. AngioDynamics: Designs, develops, manufactures, and markets various therapeutic and diagnostic devices that enable interventional physicians to treat PVD, tumors, and other non-coronary diseases. RSI(14) indicator at 36.72. Over the last six months, insiders were net buyers of 8,500 shares, which represents about 0.04% of the company's 22.69M share float.
6. Star Scientific
7. Panhandle Oil and Gas: Engages in the acquisition, management, exploration, and development of oil and natural gas properties. RSI(14) indicator at 34.21. Over the last six months, insiders were net buyers of 3,442 shares, which represents about 0.04% of the company's 7.76M share float.
8. Barrett Business Services: Barrett Business Services, offers various human resource management services to small and medium-sized businesses in the United States. RSI(14) indicator at 35.53. Over the last six months, insiders were net buyers of 31,397 shares, which represents about 0.5% of the company's 6.31M share float.
9. Big 5 Sporting Goods: Operates as a sporting goods retailer in the western United States. RSI(14) indicator at 32.91. Over the last six months, insiders were net buyers of 8,610 shares, which represents about 0.06% of the company's 14.93M share float.
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.
List compiled by Eben Esterhuizen, CFA. Kapitall's Eben Esterhuizen and Rebecca Lipman do not own any of the shares mentioned above. Insider data sourced from Yahoo! Finance, all other data sourced from Finviz.
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