3 undervalued stocks to buy now

These up-and-comers are sure to strenghten your portfolio.

By InvestorPlace Jul 15, 2010 9:40AM

Video game © CorbisBy Nancy Zambell, Editor of Buried Treasures Under $10

 

It’s becoming a bit of a broken record, but the refrain "another challenging month" does apply to the current market

environment. 


There were a host of factors influencing stocks and keeping values down in June.  However, with careful selection we can use the current volatility to make money. You see, there are plenty of fundamentally strong yet undervalued companies that the mainstream investment community hasn’t picked up.

 

Which stocks am I referring to?  The following are my current top three undervalued stock buys.

 

Activision Blizzard (ATVI) is a powerhouse in the video game industry, putting out such money-making titles as "Call of Duty: Modern Warfare 2," "Guitar Hero" and "DJ Hero." 


"Call of Duty: Modern Warfare 2" actually holds the record for video game sales, bringing in more than $1.5 billion. Activision isn’t resting on its laurels, however, as the company recently announced new content for "Guitar Hero" and "DJ Hero," including some of the biggest hits from Lady Gaga, Pussycat Dolls, Rihanna, Duran Duran and Maroon 5.

The company continues to do what it does best, creating entertainment that people crave. Its latest release is the first-person action title "Singularity." Although game reviewers say it hasn’t broken any new ground, it’s still a fun shoot-’em-up time! And that’s just what brings in the bacon for this game maker. 


ATVI is cash-rich and turned in some tremendous earnings all through the recession, but its stock has lagged as a result of the overall industry, as well as the global economic downturn. I think we will soon see a revival, as momentum for the sector is beginning to heat up.

 

Covenant Transport (CVTI) has only been around since 1986, but already it occupies the top 10% of trucking companies nationwide. The company began operations with just 25 trucks and 50 trailers, but by the end of 2009 had expanded to 3,113 tractors and 8,005 trailers. 


Focused on the U.S. and Mexico, the company’s operations include Covenant Transport and Covenant Transport Solutions of Chattanooga, Tenn.; Southern Refrigerated Transport of Texarkana, Ark.; and Star Transportation of Nashville.

 

One of the things I really like about Covenant is the diversity of its business. The firm breaks down its revenues in two segments. One provides services for freight forwarders, less-than-truckload carriers, and traditional truckload customers, including manufacturers and retailers. The other arranges transportation services for customers.


The company’s five largest customers are Estes Express Lines, Georgia Pacific, Transplace, UPS (UPS) and Wal-Mart (WMT).  As the economy improves, I expect more demand for trucking services. I also expect freight rates to gradually increase along with increased demand.  That will really bump up CVTI’s bottom line -- as well as its share price.

 

eResearchTechnology (ERES) provides technology and services to collect and distribute cardiac safety and clinical data to medical and health professionals. It has centralized the data collection process, which reduces inconsistencies that may occur from site to site, and also lowers costs and improves efficiencies. The company has been in business since 1977, and has participated in more than 5,000 studies over six continents.

 

Overall, ERES’ financials look very healthy. The company’s five-year sales growth rate of 15% is twice that of its competition; and its margins far surpass its peers. Moreover, ERES has no debt. That gives the company tremendous flexibility for growing internally and by acquisition.


During the first six months of 2009, the company repurchased shares to the tune of some 2.6 million. That means more earnings shared by fewer investors -- and that’s a big positive for owners of ERES. Over the years the company has proven to be an earnings winner, even during the very tough recession, and now that the economy is starting to come around, look for renewed upside in the stock.

 

As of this writing, Nancy Zambell was recommending all three of these stocks to subscribers of her newsletter, Buried Treasures Under $10.

 

For two more low-priced stocks to buy, follow this link.

 

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