In past weeks, I’ve talked about some simple, yet powerful screens we run at Billionaires Portfolio.
The goal for all of our screens is to identify stocks where the potential reward greatly outweighs the risk, or stocks that have an asymmetrical reward to the risk taken. Finding stocks with these characteristics is the genesis of deep value investing. This is also a key criteria we utilize at the Billionaires Portfolio.
In addition to searching through SEC filings for investors that are building controlling interests in companies, we like to run a series screens to try and find stocks that have a 100% to 200% potential upside combined with limited downside risk.
Here’s another example of one of the top screens we use:
First, we look for companies with a market capitalization greater than $25 million. For the second level of the screen, the companies much have more than three analysts covering the stock. Third, there has to be more than three analysts that have a price target on the stock. Finally, we want to find stocks that are trading at a huge discount to analyst consensus price targets.
Anyone that has worked at a hedge fund or mutual fund knows that Wall Street analysts move stocks. Stocks that have consensus analyst price targets well above their current share price, have strong sentiment and Wall Street sponsorship which usually pushes these stocks higher in the short term.
In running this screen for this this week in October, the following five stocks have hit our radar as high potential, deep value candidates. These stocks have an average analyst price target that is at least 200% higher than its current share price.
1) Ceres Inc (NASDAQ:CERE) has a current share price $1.46. The consensus analyst target price is $5.67. That gives us a “street projected return” of 288%.
2) GSE Holding Inc. (NYSE:GSE) has a current share price $2.10. The consensus analyst target price is $6.40. That gives us a “street projected return” of 205%.
3) KiOR Inc (NASDAQ:KIOR) has a current share price of $2.32. The consensus analyst target price is $7.10. That gives us a “street projected return” of 206%.
4) Echo Therapeutics Inc (NASDAQ:ECTE) has a current share price $2.55. The consensus analyst target price is $9.33. That gives us a “street projected return” of 266%.
5) ImmunoCellular Therapeutics Ltd (NYSEMKT:IMUC) has a current share price $2.67. The consensus analyst target price is $10.25.
That gives us a “street projected return” of 284%.
This gives us a great starting point to identify a stock that may be deeply undervalued coupled with strong Wall Street sponsorship and sentiment.
William Meade is the President of Pure Alpha Research, a hedge fund consulting and investment research firm. He is the former Director of Research at Zacks Investment Research in Chicago. Before that, he was the lead analyst at a top performing $1.2 Billion dollar institutional investment firm and hedge fund. Mr. Meade has a Masters in Applied Economics from The Johns Hopkins University. Learn more about William Meade and how he follows Billionaire Investors into stocks by visiting the Billionaires Portfolio.