Value Ideas: Top 10 Options Market Picks Trading Well Below Target Price

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Value investors look for stocks that they believe are trading below their "fair value" with the belief that they'll soon rise to that fair value, generating a profit for those investors savvy enough to foresee this happening. The catch is deciphering which stocks are indeed underpriced by the market.

Finding a stock's fair value
There are many ways to find a stock's fair value, but one of the simplest proxies is analyst target price. This reflects analyst expectations of where the stock is headed within the next year, and if a stock is trading at a steep discount to this number, it may be currently undervalued.

Because target prices are notoriously inflated, it helps to focus on the most pessimistic (the lowest) target prices, as well as those with sufficient analyst coverage of five or more analyst ratings.

Investing ideas
We ran a stock screen to illustrate these ideas, focusing on stocks currently favored by the options market. We screened for stocks seeing significant decreases in put/call ratio over the last 10 trading days.

We screened these option market picks for those trading well below their most pessimistic (lowest) target prices, only focusing on stocks with five or more analyst ratings.

Do you think these stocks should be trading higher?

List sorted alphabetically. (Click here to access free, interactive tools to analyze these ideas.)

1. American Axle & Manufacturing Holdings (NYS: AXL) : Engages in the manufacture, engineering, design, and validation of driveline and drivetrain systems, and related components and chassis modules for automotive industry in the United States. Of the 9 analysts that track the stock, the lowest price target stands at $11.00, which implies an upside of 29.87% from current levels around $8.47. Over the last two weeks, the stock's put/call ratio decreased from 0.22 to 0.13 (a bullish change).

2. Ducommun (NYS: DCO) : Designs, engineers, and manufactures aerostructure, and electromechanical components and subassemblies. Of the 6 analysts that track the stock, the lowest price target stands at $16.00, which implies an upside of 29.87% from current levels around $12.32. Over the last two weeks, the stock's put/call ratio decreased from 0.13 to 0.09 (a bullish change).

3. Finish Line (NAS: FINL) : Operates as a mall-based specialty retailer in the United States. Of the 12 analysts that track the stock, the lowest price target stands at $23.00, which implies an upside of 16.99% from current levels around $19.66. Over the last two weeks, the stock's put/call ratio decreased from 0.18 to 0.15 (a bullish change).

4. Halozyme Therapeutics (NAS: HALO) : Engages in the development and commercialization of recombinant human enzymes that transiently modify tissue under the skin to facilitate injection of other therapies or correct diseased tissue structures for clinical benefits. Of the 8 analysts that track the stock, the lowest price target stands at $10.00, which implies an upside of 20.48% from current levels around $8.30. Over the last two weeks, the stock's put/call ratio decreased from 0.26 to 0.21 (a bullish change).

5. HEALTHSOUTH (NYS: HLS) : HealthSouth Corporation offers inpatient rehabilitative health care services in the United States and Puerto Rico. Of the 16 analysts that track the stock, the lowest price target stands at $22.00, which implies an upside of 20.95% from current levels around $18.19. Over the last two weeks, the stock's put/call ratio decreased from 0.53 to 0.19 (a bullish change).

6. InfoSpace (NAS: INSP) : Develops search tools and technologies that assist consumers with finding content and information on the Internet. Of the 5 analysts that track the stock, the lowest price target stands at $11.00, which implies an upside of 28.35% from current levels around $8.57. Over the last two weeks, the stock's put/call ratio decreased from 0.53 to 0.09 (a bullish change).

7. Mobile Telesystems (NYS: MBT) : Provides telecommunications services primarily in the Russian Federation, Ukraine, Uzbekistan, Turkmenistan, Armenia, and Belarus. Of the 19 analysts that track the stock, the lowest price target stands at $16.00, which implies an upside of 19.94% from current levels around $13.34. Over the last two weeks, the stock's put/call ratio decreased from 0.29 to 0.24 (a bullish change).

8. Noranda Aluminum Holding (NYS: NOR) : Engages in the production and sale of primary aluminum products and rolled aluminum coils in the United States. Of the 5 analysts that track the stock, the lowest price target stands at $10.00, which implies an upside of 17.65% from current levels around $8.50. Over the last two weeks, the stock's put/call ratio decreased from 0.18 to 0.1 (a bullish change).

9. WMS Industries (NYS: WMS) : Engages in the design, manufacture, and distribution of games, video and mechanical reel-spinning gaming machines, and video lottery terminals (VLTs) for the legalized gaming industry worldwide. Of the 16 analysts that track the stock, the lowest price target stands at $22.00, which implies an upside of 18.85% from current levels around $18.51. Over the last two weeks, the stock's put/call ratio decreased from 1.5 to 0.51 (a bullish change).

10. TAL Education Group (NYS: XRS) : Provides K-12 after-school tutoring services in the People's Republic of China. Of the 6 analysts that track the stock, the lowest price target stands at $12.60, which implies an upside of 27.92% from current levels around $9.85. Over the last two weeks, the stock's put/call ratio decreased from 14.12 to 0.25 (a bullish change).

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.


Kapitall's Alexander Crawford does not own any of the shares mentioned above. Target price data sourced from Thomson/First Call (via Yahoo! Finance), options data sourced from Schaeffer's.

At the time this article was published Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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