As we head in to 2018, I wanted to share three stocks that I have been researching and find to be very attractive at this time. The stocks were evaluated from all three analysis styles and were selected because they are fundamentally sound, the technical performance has been strong and they don’t have overly optimistic sentiment toward them.
TAL Education Group (NYSE: TAL) is an educational assistance company based in China. The company provides tutoring services to K-12 students on various subjects from math to physics, geography to chemistry. In addition to the network of over 500 learning centers and 400 service centers, the company also offers online education services through its website jzb.com, testing services for college entrance exams, grad school entrance exams and high school entrance exams. The company is headquartered in Beijing and was founded in 2003.
The Chinese culture puts great emphasis on educational success and that plays in to TAL’s success as a company. The company has seen its earnings per share grow at a rate of 20 percent for the past three years while its sales have grown at a rate of 54 percent. The company has a return on equity of 27.9 percent, a profit margin of 18.3 percent and an operating margin of 12 percent.
TAL has been climbing higher for the past two years and has recently pulled back enough that it isn’t in overbought territory any longer. It spent the better part of this year in overbought territory based on the 10-week RSI. Even after the recent pullback, the stock stayed above its 52-week moving average and I look for the upward move to resume. The last time the RSI was this low marked the beginning of a run that saw the stock climb from under $12 to over $36 in less than a year. I am looking for a similar move this time.
MiMedx Group (Nasdaq: MDXG) is a biopharmaceutical company that develops and markets regenerative biologics using human placental tissue. The company’s technology and processes have applications in many segments of the healthcare industry: wound care, burns, surgery, orthopedics, spine injuries, and sport injuries. The company’s products are sold through a direct sales team and through independent distributors. MiMedx is headquartered in Marietta, Georgia and was founded in 2008.
MDXG has seen tremendous growth in recent years. The earnings per share have grown at a rate of 66 percent per year and they grew by 33 percent last quarter. The company’s sales have grown at a rate of 41 percent per year over the last three years including 31 percent in the most recent quarter. The company boasts a return on equity of 20.2 percent and a profit margin of 16.6 percent. Even as the company has performed well, there is a considerable amount of pessimism toward the stock. The current short interest ratio is at 14. This means that the number of shares sold short is 14 times the average daily trading volume. When the stock resumes its upward path, the short sellers will add buying pressure to the stock as they have to buy the shares to cover their position.
MDXG is setting up much as it did in February. The stock has pulled back to the support of the 52-week moving average and the 10-week RSI. After that setup in February, the stock rallied sharply and doubled in four months from mid-February through mid-June. I look for the stock to rally again in the new year.
Kemet Corporation (NYSE: KEM) manufactures and sells passive electronic components worldwide. The company is set up in two distinct business lines: Solid Capacitors, and Film and Electrolytic. The company’s products include tantalum, multilayer ceramic, film, electrolytic, paper and solid aluminum capacitors. The products are used in industries such as automotive, communications, computers, industrial, military/aerospace, and alternative energy. Kemet is headquartered in Simpsonville, South Caroline and was founded in 1919.
Kemet sports a profit margin of 31 percent, an operating margin of 9.5 percent and a return on equity of 17.9 percent. The company has experienced tremendous growth in recent years. The company is on pace for EPS growth of 253 percent this year and over the past three years has averaged 97 percent EPS growth annually. The sales growth in the most recent quarter was 61 percent and is on pace for growth of 54.3 percent for the year. Analysts expect the growth to continue at a pace of 12 percent per year over the next five years.
From February of ’16 through the recent high in October, Kemet’s stock rallied from under $2 per share to a high of $27.35. That is a gain of over 1,200 percent. While I don’t anticipate a return anywhere near that much this time around, the overbought/oversold indicators are setting up in a manner that is very similar to where they were before the huge rally. The fact that the 52-week moving average is currently providing a layer of support should be helpful as well.
With the major indices and most sectors being extremely overbought, it was difficult to find stocks that were performing well from a fundamental viewpoint, weren’t overbought and weren’t overly loved by investors and analysts. These three stocks met all of those requirements and should be great additions to your portfolio in the coming New Year.