Oversold Stocks In Uptrends

By Matthew McCall | May 25, 2012 AAA

The sudden 8% pullback in the S&P 500 has moved the index into oversold territory and brought a large number of stocks down its level. This selling led me to run a scan that identified stocks that remain above their 50-day moving average and have RSI readings below 30.
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A stock that trades above its 50-day moving average is typically considered to be in an uptrend due to the recent strength of the stock price. An RSI below 30 indicates a stock is oversold and the likelihood of a bounce is increasing. When the two are combined, it results in a stock that is in an uptrend, but at the same time oversold. Sounds like a high reward-to-risk setup. Below are four stocks that meet the criteria highlighted.

SEE: An Introduction To The Relative Strength Index

Food and Beverage
The Coca-Cola Company (NYSE:KO) has pulled back nearly 5% from its recent 13-year high and is sitting on the 50-day moving average at $74 per share. The iconic company sells non-alcoholic beverages around the globe and has consistently been one of the most recognizable brands in the world. The stock is in the consumer staple sector, which has been holding up well during the recent market pullback. With a dividend yield of 2.7%, it adds to the allure of the company. The one caveat is the PEG ratio, which is roughly 2.37, higher than most buy candidates.

Susser Holdings (Nasdaq:SUSS) operates convenience stores in New Mexico, Texas, and Oklahoma under the Stripes brand name. The stock has been a big winner over the last year and is now down about 6% from an all-time high set two weeks ago. A PEG ratio of 1.80 is more acceptable than that of KO and the location of the stores make the company an interesting investment option. Consider the energy boom in the three states mentioned and it is not surprising, the stock is doing so well. The 50-day moving average is at $26.80.

Fundamentally Strong
GNC Holdings
(NYSE:GNC) broke its 50-day moving average intraday last week, but has been able to close above the important support level that is currently at $36.45. The specialty retailer sells health and wellness products that include vitamins as well as sports and diet products. The chart combined with the PEG ratio of around 0.95 make the stock an attractive opportunity after pulling back roughly 6% from an all-time high. The stock also pays a modest 1.2% dividend.

SEE: Why Dividends Matter

High Dividend
Sempra Energy
(NYSE:SRE) is a worldwide energy services company that provides energy-related services to approximately 31 million customers around the globe. The company boasts a 3.7% dividend yield and trades with a PEG ratio of 2.18. The stock is only down 3% from a multi-year high and is holding above the 50-day moving average of $62.44. A bonus for SRE is that one of its divisions deals with liquefied natural gas (LNG), which could be the future for natural gas power.

The Bottom Line
Because the stocks have already pulled back from highs and have a distinct support level, determining the stop-loss area should be fairly easy. In general, a stop-loss a few percentage points below the 50-day moving average will be appropriate. The pullback from the high lowers the risk, as the stock is closer to support, and at the same time increases the reward potential because the entry price is lower. Another win-win for the investor.

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At the time of writing, Matthew McCall did not own shares in any of the companies mentioned in this article.
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