New year, new goals and projects. I don’t forget to include new stock market’s opportunities. Here is a short summary of what I am looking for in a stock:
– Hedge fund sponsorship: I like to see top hedge funds investing in the stock
– Price discount: the stock should have a discount over its future prospects
– Fundamentals will improve: there should be a thesis on why fundamentals of this company will get better in the future. This matters a lot
– Solid technical picture: fundamentals can be right but I never buy stocks a stock the start of a downtrend.
I think that both Rovi Corporation (NASDAQ:ROVI) and BP plc (NYSE:BP) follow most of these requirements. Let’s review them!
Rovi Corporation (NASDAQ:ROVI)
– Hedge fund sponsorship: Seth Klarman, one of the best fundamental investors bought the stock at an average of $15
– Price discount: shares seem to have found support in the mid-teens at a little over 1x book value. Multiples are historically cheap considering that Rovi traded at 4x P/BV, 12x P/S and 70x P/E just 2 years ago. Current multiples: 11x P/E, 1x P/BV and 2.2x P/S
– Fundamentals will improve: Here you can read a great thesis on why fundamentals will improve
– Solid technical picture: I pay attention to volatility contraction and relative strength. What those terms mean ? I like to see when a historically high volatile stock starts losing its high volatility and starts trading in a more normal way. In addition, before November, every stock market rally were used to unload Rovi Corporation (NASDAQ:ROVI) shares by institutional investors. That trend ended and Rovi Corporation (NASDAQ:ROVI)does not go act badly or worse than the general market. Here is my analysis:
BP plc (NYSE:BP)
– Hedge fund sponsorship: Richard Perry, Klarman, Pzena and Richard Snow hold this stock among other pro fundamental investors. They should see something here.
– Price discount: BP plc (NYSE:BP) is trading at a 27% discount to NAV versus a 19% discount for its peers and on P/E, BP trades at a 10% discount to the peer group
– Fundamentals will improve: here is a good thesis on why BP fundamentals will get better.
– Solid technical picture: BP has been trading in the tight range of $43/41 since August and recently broke that range with huge volume, an evidence that institutionals may start to become bullish on BP plc (NYSE:BP) story. I think the stock is a good buy at these levels. here is my analysis:
This article was originally written by Federico Flom, and posted on WarrenTrades.