This market has taken its toll on almost every company, weak and strong alike. But the strong companies with good growth prospects should come out on top. Many of these stocks got beaten down after the slightest misstep, despite future expectations, or have been lumped together with other poor-performing industry peers. Value inventors should find these stocks extremely attractive - trading at cheap valuations vs. peers, and with strong future growth prospects.

IN PICTURES: Learn To Invest In 10 Steps

The Value Bunch
Tower Group (Nasdaq:TWGP) provides commercial and personal P&C insurance. Peer companies have been subject to valuation retracement because these companies have felt the "AIG effect". The "AIG effect" has subjected insurance companies to extreme scrutiny for their investment portfolio and risk profile. Towers has a trailing 12-month (ttm) P/E of 9.8, vs. the industry average of 8.6. This may not be very compelling, but when the historical growth of over 42% vs. 14% for the industry is factored in, the high P/E ratio is justified.

Healthstream (Nasdaq:HSTM) is in the unique business of providing internet-based learning and research solutions for the training, information and education needs of the healthcare industry in the United States. This company helps healthcare providers analyze and interpret survey data, such as the patient survey. It also provides training software for healthcare providers. This business has very little national competition, but does face more local or regional players. HSTM has a ttm P/E of 10.5 times, vs. similar companies of 23 times, and has above average growth rates. This is a business which should continue to flourish as patients become more consumer-oriented and the choice in healthcare takes center stage.

Mercury Computer Systems (Nasdaq:MRCY) designs and manufactures high-performance embedded, real-time digital signal and image processing systems and software for computer systems in the aerospace and defense markets. This company competes in a crowded hardware and software industry, but only in this small niche market. However, it is dependent on government spending and contracts - a difficult position in the current economic state. But it does benefit from the current ongoing foreign wars. The valuation is extremely compelling, with a ttm P/E of 11 times, vs. the rest of the industry 13.9 times, and has much better financial strength.

Inventure foods (Nasdaq:SNAK) produces and sells snack foods in the United States under several brands, such as T.G.I.Friday's and Burger King. While the ttm P/E is on par with its peers, SNAK's growth profile is certainly more attractive, with historical sales growth of 13.63%, while the industry lagged with only 4.4% growth.

The Bottom Line
The recent market has not been kind to stock picking. But in the long run, valuation should impact stock performance. Finding stocks that are undervalued in good businesses should result in price appreciation that outperforms the broader market. These four stocks are expected to grow faster than the market in good industry segments - a value investor's dream. (Buying value stocks that are moving higher helps investors steer clear of value traps. To learn more, see Value Investing + Relative Strength = Higher Returns.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  2. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  3. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  4. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  5. Investing News

    Chipotle Served with Criminal Probe

    Chipotle's beat muted expectations and got a clear bill from the CDC, but it now appears that an investigation into its E.coli breakout has expanded.
  6. Stock Analysis

    Analyzing Sprint Corp's Return on Equity (ROE) (S)

    Learn about Sprint's return on equity. Find out why its ROE is negative and how asset turnover and financial leverage impact ROE relative to Sprint's peers.
  7. Stock Analysis

    Why Alphabet is the Best of the 'FANGs' for 2016

    Alphabet just impressed the street, but is it the best FANG stock?
  8. Investing News

    A 2016 Outlook: What January 2009 Can Teach Us

    January 2009 and January 2016 were similar from an investment standpoint, but from a forward-looking perspective, they were very different.
  9. Mutual Funds & ETFs

    3 Vanguard Equity Fund Underperformers

    Discover three funds from Vanguard Group that consistently underperform their indexes. Learn how consistent most Vanguard low-fee funds are at matching their indexes.
  10. Investing News

    Alphabet Earnings Beat Expectations (GOOGL, AAPL)

    Alphabet's earnings crush analysts' expectations; now bigger than Apple?
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center