There are several approaches that investors can use when finding new stock ideas. One of the most popular is technical analysis, which involves looking at the charts and using various indicators to determine if the stock is a buy candidate. What makes the market efficient is that one investor may view a chart as a buy signal and another as a sell signal.
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I came across four stocks during my daily search through interesting charts and will explain why each stock is flashing a buy signal.
OYO Geospace Corporation (Nasdaq:OYOG) manufactures instruments that are used in the process of acquiring seismic data. This process can be used in the monitoring and execution of oil and gas wells. The company is also involved in niche sectors such as marine cable, earthquake detection and textile markets. Technically the stock rallied to a new all-time high in February 2012 on heavy volume before pulling back and consolidating during the last couple of weeks. The stock has support between $100 and $103, and as long as it can hold above that level it will remain in a bullish pattern. Fundamentally OYOG is also attractive with a PEG ratio of 0.46, suggesting higher prices in the future. For related reading, see Interpreting Support And Resistance Zones.
Berry Petroleum Company (NYSE:BRY) is an independent oil and natural gas company that has the majority of its wells west of Colorado. Fundamentally the stock caught my eye with a PEG ratio of 0.33, making it more attractive than many of its peers. The 0.6% dividend yield is not a decision changer. Technically the stock broke out to a multi-month high in February before pulling back to support at the $48 area. The volume has been bullish and the stock is now considered oversold. From a macro view, the increased emphasis on oil production in the United States will also play an important role in pushing BRY and the rest of the sector higher.
Kennametal (NYSE:KMT) supplies tooling and engineering products for the production process to companies worldwide in a number of different industries. The products are used in everything from mining for metals to agriculture to the defense sector. Technically KMT broke to a new high above $46 earlier in March and has since been consolidating near the breakout level. That consolidation combined with bullish volume has generated a buy signal for the stock. To back up the chart is a PEG ratio of 0.81, a dividend yield of 1.3% and the positioning in a hot sector.
Royal Gold (Nasdaq:RGLD) is not your typical gold stock; instead of owning the mines and being involved in the extraction process, RGLD owns royalty interests in various mining projects around the globe. As of Aug. 30, 2011 the company had interests in 184 properties on six continents. The short-term chart on RGLD is not as positive as the first three, however the long-term chart is extremely bullish. The stock has pulled back to double-bottom patterns and is near support at the $60 area. A buying opportunity exists as long as RGLD can continue to close above support.
The Bottom Line
It is important to remember that if you are buying for a short-term trade that the fundamentals will likely not make a difference. But, if you are buying a stock to hold for a longer period of time, the fundamentals are crucial as well as the technical analysis. For additional reading, check out 5 Must-Have Metrics For Value Investors.
At the time of writing, Matthew McCall did not own shares in any of the companies mentioned in this article.