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Quickel's Picks: 7 Undervalued Growth Stocks

 April 26, 2012 02:06 PM

by Stephen Quickel, editor US Investment Report

Traders and speculators have been dashing from euphoria to despair on a daily basis. We steadier folks try to ignore the quick swings, by sticking to sound stocks and employing protective stop-loss limits.

Meanwhile, seven new stocks have been added to our Recommended List. Collectively, their projected 5-year earnings growth averages 21.7% according to Street estimates. They trade at just 10.3 times 2012 earnings and an average PEG ratio of 0.51.

They are rated Strong Buys or Buys by 80% of the analysts covering them, and by our reckoning are capable of averaging 20% to 30% price appreciation in the coming 6 to 12 months.

Oil States International (OIS) is a major supplier to oil drillers and producers—providing everything from tubing and tools to the living accommodations, feeding and laundry services to oil field workers.

We previously recommended the stock in November; it shot from 70 to 88 before nosing down in February. Now back in the low 70s, with its growth prospects undiminished, OIS seems seriously oversold.

The consensus 5-year earnings growth is 25% a year, the forward P/E is just under 10, and our price target guesstimate is 105. Nine of 11 analysts call OIS a Strong Buy, the other two rate it a Buy. One caution: Wait for the price to clearly bottom out before buying.

Tenneco (TEN) did well for us in 2010, doubling from 22 to 45, and soared briefly from 30 to 40 for us in January before stalling.

Yet, while trading at 36, down from its 2011 high of 45, we believe upon further analysis that TEN is ready to rebound.

Amid the current recovery in auto sales, TEN is a major supplier of exhaust and ride control systems, both to the original equipment and aftermarket sectors.

With revenues headed for $9 billion in 2012, from less than $5 billion in recession-plagued 2009, its earnings continue on a roll at a 28% a year growth clip.

Its year-ahead P/E is a mere 8.8, its forward PEG an astounding 0.30. Out of 11 analyst ratings, eight are Strong Buys and two are Buys.

Among the newcomers to the Recommended List, Timkin Co. (TKR) is an old-line Midwestern manufacturer of bearings, alloy steels and power transmission equipment that also trades at an alluring P/E below 10.

Of eight analyst following TKR, six rate it a Strong Buy, 2 a Buy.

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