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 shares by institutional investors. That trend ended and Rovi Corporationdoes 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.
