These Stand Out From the Crowd

 | Aug 14, 2012 | 7:30 AM EDT
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As we enter the tail end of second-quarter earnings season, it seems a logical time to make some observations about the quarter. First, the stock market has performed very well since the recent bottom around early June -- equities are up some 10% since those lows. Second, this rally has occurred in the face of tepid earnings reports. While bottom-line performance has been OK, so far only about 40% of S&P companies have beat on revenue. Finally, guidance has been cautious overall and third-quarter earnings estimates are significantly down from where they were just a few months ago.

Given this environment, I think it makes sense to find equities that have consistently beat estimates over the last few quarters, have cheap valuations and whose forward estimates have fought the overall trend by actually going up over the last few months. Here are two stocks who exhibit those traits.

Ashland (ASH) is a specialty-chemicals company that operates in the U.S. and internationally. It operates through four segments: specialty ingredients, water technologies, performance materials and consumer markets.

Here are four reasons Ashland is still undervalued at under $73 a share.

● Consensus earnings estimates for fiscal 2012 have risen some 10% in the last three months. Fiscal 20123 targets have also improved by around 5% in that period. Some of the improvement is due to a cash tender offer to retire $650 million of relatively high-cost debt, a move that should add $0.30 a share to earnings once it's completed.

● The company has a history of beating quarterly estimates, having posted six straight quarters that easily exceeded expectations. The average beat over consensus during those six quarters has been 13%.

● In addition to consistently beating estimates, Ashland's growth prospects seem undervalued by the market. The stock sports a five-year projected price-to-earnings ratio, relative to growth (PEG) of under 1 -- that is, 0.77. Also, 75% of the company's earnings come from high-margin, less cyclical specialty-material products.

● Earnings are increasing at a nice clip. The company made $3.58 a share in fiscal and is on track to earn $6.43 a share in 2012. Analysts project $7.42 for 2013.

Here's your second name -- MYR Group (MYRG), which provides electrical construction services throughout the continental U.S. Some of the company's key customers include utilities and power producers.

Following are four reasons MYRG shares still have upside at $19.

● Earnings are improving at a steady pace. The company made $1.37 in 2011 and looks to produce $1.54 in 2012, with analysts projecting $1.74 in earnings per share next year.

● MYRG has easily beat earnings estimates each of the last three quarters, with an average beat of 23% above consensus over that period. Consensus estimates for 2012 have improved some 5% over the past three months, and 2013 estimates have gone up 3% in the last month.

● Analysts expect 2012 revenue growth of more than 25% before it moderates to a projected 6% in 2013. The stock sports a cheap five-year projected PEG, as well, of 0.42.

● The 10 analysts who cover the stock have a $27 median price target on the stock. The company has no debt and is cheap at just over 11x forward earnings, a discount to its five-year average of 18x.

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