Here is a couple of CHEAP (priced below $50) stocks that might be worth your attention this week. This short list was compiled with help of various sources of data, including Buy recommendations from several renowned stock data providers and analytical services. This is why I’m calling the approach a consensus strategy. The stocks I’m going to present you below are generally believed to outperform the stock market in the coming months, they have a consensus recommendation of Buy, their fundamentals are scored considerably better than most stocks and their average target price by stock analysts is above current market valuation.

In order to consider buying the stock’s shares, the following criteria need to be satisfied:

  • TheStreet score: A+, A or A- (Strong Buys)
  • Yahoo Finance recommendation: at least mixed Buy/Hold
  • MarketBeat recommendation: at least mixed Buy/Hold
  • Yahoo Finance target price: min. 5% higher than current price
  • Piotroski F-Score: min. 4
  • Moody’s Daily Credit Risk: 1 to 6
  • InvestorsObserver Overall Score: min. 50
Notes:
  • Descriptions of those criteria are provided at the end of this post.
  • The criteria used here are less restrictive than those I’m using in general, without requirement taht the stock price is below $50. This is because cheap stocks tend to have weaker fundamentals and, typically, are less favored by stock experts

If you decide to buy any of the below stocks, you might want to consider the following selling conditions (at least one of them should be satisfied):

  • price is higher or close to target
  • profit is in range 20% – 30%
  • loss is higher than 50%
  • TheStreet recommendation is changed to Sell
  • Yahoo Finance recommendation is changed to Sell

 

Let’s now take a look at the stocks I’ve identified with this strategy today.

 

CONAGRA BRANDS INC (CAG)

Sector: Consumer Non-Durables
Industry: Food: Major Diversified
Employees: 16500
Description: Conagra Brands, Inc. engages in the manufacture and sale of processed and packaged foods. It operates through the following segments: Grocery and Snacks; Refrigerated and Frozen; International; Foodservice; and Pinnacle Foods.
Dividend: Conagra Brands pays an annual dividend of $0.85 per share, with a dividend yield of 2.39%. CAG’s most recent quarterly dividend payment was made to shareholders of record on Thursday, September 3. The company has grown its dividend for the last 1 consecutive years and is increasing its dividend by an average of -5.27% each year. Conagra Brands pays out 37.28% of its earnings out as a dividend. 
Current valuation: $35.45

 

Valuation of entry parameters:

TheStreet score: A-
Yahoo Finance recommendation: Buy
MarketBeat recommendation: Buy
Yahoo Finance target price: 38.06
Piotroski F-Score: 4
Moody’s Daily Credit Risk: 6
InvestorsObserver Overall Score: 67
Yahoo Finance estimated 1 year change: 7.36%

 

FEDERAL SIGNAL CORP (FSS)

Sector: Producer Manufacturing
Industry: Trucks/Construction/Farm Machinery
Employees: 3600
Description: Federal Signal Corp. engages in the designed manufacture of products and integrated solutions for municipal, governmental, industrial, and commercial customers. It operates through the Environmental Solutions Group, and Safety and Security Systems Group segments.
Dividend: Federal Signal pays an annual dividend of $0.32 per share, with a dividend yield of 1.08%. FSS’s most recent quarterly dividend payment was made to shareholders of record on Friday, September 4. The company has grown its dividend for the last 1 consecutive years and is increasing its dividend by an average of 4.55% each year. Federal Signal pays out 17.88% of its earnings out as a dividend. 
Current valuation: $29.54

 

Valuation of entry parameters:

TheStreet score: A-
Yahoo Finance recommendation: Buy
MarketBeat recommendation: Buy
Yahoo Finance target price: 35.25
Piotroski F-Score: 5
Moody’s Daily Credit Risk: 6
InvestorsObserver Overall Score: 60
Yahoo Finance estimated 1 year change: 19.33%

 

HAWKINS INC (HWKN)

Sector: Distribution Services
Industry: Wholesale Distributors
Employees: 656
Description: Hawkins, Inc. engaged in the distribution, blending, and manufacture of chemicals and specialty ingredients for a wide variety of industries. It operates through the following segments: Industrial, Water Treatment, and Health and Nutrition.
Dividend: Hawkins pays an annual dividend of $0.93 per share, with a dividend yield of 2.00%. HWKN’s most recent quarterly dividend payment was made to shareholders of record on Friday, August 28. The company has grown its dividend for the last 1 consecutive years and is increasing its dividend by an average of 3.91% each year. Hawkins pays out 34.96% of its earnings out as a dividend. 
Current valuation: $46.47

 

Valuation of entry parameters:

TheStreet score: A-
Yahoo Finance recommendation: Buy
MarketBeat recommendation: Buy
Yahoo Finance target price: 62.0
Piotroski F-Score: 7
Moody’s Daily Credit Risk: 6
InvestorsObserver Overall Score: 68
Yahoo Finance estimated 1 year change: 33.42%

 

MAGIC SOFTWARE ENTERPRISES (MGIC)

Sector: Technology Services
Industry: Packaged Software
Employees: 2642
Description: Magic Software Enterprises Ltd. engages in the provision of proprietary application development and business process integration platforms, vertical software solutions, and vendor of information technology (IT) outsourcing software services. It operates through Software Services and IT Professional Services segments.
Dividend: Magic Software Enterprises pays an annual dividend of $0.35 per share, with a dividend yield of 2.72%. MGIC’s most recent semi annually dividend payment was made to shareholders of record on Thursday, September 10. The company has grown its dividend for the last 1 consecutive years and is increasing its dividend by an average of 20.47% each year. Magic Software Enterprises pays out 60.34% of its earnings out as a dividend. 
Current valuation: $12.86

 

Valuation of entry parameters:

TheStreet score: A-
Yahoo Finance recommendation: Buy
MarketBeat recommendation: Buy
Yahoo Finance target price: 16.5
Piotroski F-Score: 4
Moody’s Daily Credit Risk: 4
InvestorsObserver Overall Score: 66
Yahoo Finance estimated 1 year change: 28.3%

 

SCHNEIDER NATIONAL INC (SNDR)

Sector: Transportation
Industry: Trucking
Employees: 15650
Description: Schneider National Inc. provides transportation and logistics services. The firm’s transportation solutions include van truckload, dedicated, regional, bulk, intermodal, brokerage, supply chain management, port logistics services and engineering and freight payment services. It operates through the following segments: Truckload, Intermodal and Logistics.
Dividend: Schneider National pays an annual dividend of $0.26 per share, with a dividend yield of 1.03%. SNDR’s next quarterly dividend payment will be made to shareholders of record on Thursday, October 8. Schneider National pays out 20.97% of its earnings out as a dividend. 
Current valuation: $25.23

 

Valuation of entry parameters:

TheStreet score: A-
Yahoo Finance recommendation: Buy
MarketBeat recommendation: Buy / Hold
Yahoo Finance target price: 28.62
Piotroski F-Score: 5
Moody’s Daily Credit Risk: 4
InvestorsObserver Overall Score: 71
Yahoo Finance estimated 1 year change: 13.44%

 

Now, a few words on the criteria I’m using and sources of data.

 

1. TheStreet score

The first filtering step is to get stocks with Buy recommendation at TheStreet stock screener (https://www.thestreet.com/r/ratings/reports/ir-screener.html). I’m only keeping stocks with A or A+ rating (top ones), although A-, B+, B and B- are Buys as well.

From thestreet.com:

A (Excellent) – The stock has an excellent track record for maximizing performance while minimizing risk, thus delivering the best possible combination of total return on investment and reduced volatility. It has made the most of the recent economic environment to maximize risk-adjusted returns compared to other stocks. While past performance is just an indication — not a guarantee — we believe this fund is among the most likely to deliver superior performance relative to risk in the future as well.

And about the methodology (source: https://www.thestreet.com/r/ratings/reports/detail/T.html):

TheStreet Ratings’ stock model projects a stock’s total return potential over a 12-month period including both price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to perform against a general benchmark of the equities market and interest rates. While our model is quantitative, it utilizes both subjective and objective elements. For instance, subjective elements include expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings. Objective elements include volatility of past operating revenues, financial strength, and company cash flows.

 

2.  Yahoo Finance  recommendation and target price

It is required that the Yahoo Finance stock recommendation is at least mixed Buy/Hold from experts. Additionally, the predicted target price (average, from experts) should be at least 5% higher than the current one.

 

3. MarketBeat recommendation

Similar to Yahoo Finance, it is required that the MarketBeat stock recommendation is at least mixed Buy/Hold.

 

4. Piotroski F-Score

The Piotroski score is a number between 0-9 that reflects nine criteria used to determine the strength of a company’s financial situation, including profitability, leverage or operating efficiency. Zero is the worst value and nine is the best. As we can read in Piotroski’s paper from 2000:

In addition, an investment strategy that buys expected winners and shorts expected losers generates a 23% annual return between 1976 and 1996, and the strategy appears to be robust across time and to controls for alternative investment strategies.

It is required that the score is 4 or higher. The values were retrieved from https://www.gurufocus.com.

 

5. Moody’s Daily Credit Risk

Moody’s Daily Credit Risk Score is a 1-10 score, which provides a forward-looking, one-year measure of credit risk. It is updated daily and takes into account day-to-day market movements compared to a company’s liabilities.

The value is retrieved from https://markets.businessinsider.com and is expected to be in the range of 1-6.

 

6. InvestorsObserver Overall Score

The rank has a value in between 0 and 100. It takes into account both technical analysis and fundamental stock data. An Overall Rank of N means that a given company is rated above N% of stocks, therefore the higher the number, the better. My requirement is that the company has InvestorsObserver Overall score of at least 50.

More detailed explanation from https://www.investorsobserver.com/learning-center/what-the-scores-mean/what-does-the-overall-score-mean:

The Overall Score combines our two technical scores (Short Term and Long Term) with our Fundamental Score into one metric. This makes our overall score a great place to start when evaluating stocks, regardless of your investing style.

A low score doesn’t necessarily mean a stock is likely to go down, just that our system doesn’t think there’s much of a bullish case for it.

Please note that the company profile data (short description) was taken from  https://www.tradingview.com (sometimes I shortened it) and dividend data was retrieved from MarketBeat.

I hope you enjoyed the reading. What do you think about this stock selection and the strategy? Feel free to leave a comment below.

Michael

 

Disclosures:

  • What you see here is my personal opinion, my own investments and should not be treated as investing advice
  • I’m an amateur investor

 

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