Cheap stocks have an undeniable appeal because they offer investors the potential to score big returns.
Using MSN Money’s Deluxe Screener, columnist Harry Domash has identified nine companies whose shares are bargains now but have the potential to recover from the problems that sank their share prices in the first place.
Among the stocks that the screen turned up is RealNetworks (RNWK, news, msgs), the operator of the Rhapsody online music service. RealNetworks expects the biggest music companies will soon permit music to be sold online without copy-protection software. Today, music sold online comes with software that limits what users can do with the songs after they buy them. Songs purchased on iTunes, for instance, play only on Apple’s (AAPL, news, msgs) iPod music player.
The screen also identified Art Technology Group (ARTG, news, msgs), a provider of software and services that help about 600 companies do business online. The Cambridge, Mass., company last month announced a deal with apparel retailer Chico’s FAS (CHS, news, msgs), which plans to relaunch its Web storefronts for each of its brands using an Art Technology Group product suite.
Coeur D’Alene Mines (CDE, news, msgs) also made the cut. The company mines silver, gold, lead and zinc in the U.S., South America, Africa and Australia. Its plan to open a gold mine near Juneau, Alaska, this year sustained a setback last month when a federal appeals court indicated it would overturn a permit for the mine’s tailings dump.
Here is the complete list of stocks uncovered by the screen April 19.
| Company | Industry | Previous day’s close |
|---|---|---|
| Art Technology Group (ARTG) | Internet software and services | $2.23 |
| Coeur D’Alene Mines (CDE) | Silver and gold | $4.15 |
| Netlist (NLST) | Electronic equipment | $4.34 |
| Actuate (ACTU) | Application software | $5.73 |
| TransAct Technologies (TACT) | Computer peripherals | $7.15 |
| RealNetworks (RNWK) | Internet software and services | $7.66 |
| STEC Inc. (STEC) | Data storage | $8.01 |
| Website Pros (WSPI) | Internet services and products | $8.88 |
| Silicon Image (SIMG) | Semiconductors | $9.11 |
The screen is based on the following parameters:
- A previous day’s closing price between $2 and $9.95 a share
- Average daily trading volume of at least 40,000 shares over the previous quarter, to weed out dead or rarely traded stocks
- A return on invested capital of at least 10%, to isolate companies with profits sufficient to support growth or reward shareholders
- A price-sales ratio of 8 or less
- Year-over-year revenue growth of at least 12% in the past 12 months
- Revenue growth in the previousquarter that’s at least 75% of the growth rate for the previous 12 months
- Forecasted earnings-per-share growth of at least 15% over five years
- At least 30% of outstanding shares held by institutional investors
- A mean recommendation by analysts of “hold,” “buy,” or “strong buy.”
- At least 30% of outstanding shares held by institutional investors
- No negative earnings suprises in the recent past
Domash cautions investors against expecting to score easy gains on cheap stocks, many of which got that way because market players spied serious fundamental problems that probably won’t go away. Thus, many are likely to get even cheaper.As a starting point for additional research, however, the screen offers investment ideas that can isolate profitable companies in the cheap-stock universe. For more details on the screening criteria, click here.
Source: articles.moneycentral.msn.com
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