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    8 Undervalued, Highly Shorted Stocks With Strong Sources Of Profitability

    Mon, 05/07/2012 - 10:47 EDT - Seeking Alpha
    • AFL
    • BECN
    • BWA
    • CYH
    • Kapitall
    • PRAA
    • TWIN
    • VRA
    • WTW

    By Kapitall:Do you consider yourself a contrarian investor? For a look at potentially underestimated and undervalued names, we ran a screen. We began by screening for highly shorted stocks, with float shorts above 10%. We then screened for those that appear undervalued relative to earnings growth, with PEG below 1. Then to analyze these companies' profitability, we ran DuPont analysis on the names. DuPont analyzes profitability by breaking up return on equity (net income/equity) into three components:
    ROE
    = (Net Profit/Equity) = (Net profit/Sales)*(Sales/Assets)*(Assets/Equity) = (Net Profit margin)*(Asset turnover)*(Leverage ratio) Because increases in net margin and asset turnover are considered good things, DuPont focuses on companies with these positive characteristics: Increasing ROE along with,

    • Decreasing leverage, (i.e. decreasing Asset/Equity ratio)
    • Improving asset use efficiency (i.e. increasing Sales/Assets ratio) and improving net profit margin (i.e. increasing Net Income/Sales ratio)

    Those companies that pass DuPont are seeing positive trends in the sources ofComplete Story »

    • Original article
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