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Macro View

The old adage of "sell in May and go away" has been amazingly accurate the last three years. Take a look at the returns on the S&P 500 over the first four months of the year compared to the returns from the following four months:

Although this may look a little ominous for this summer, I'm a firm believer that you shouldn't base your investing decisions upon what month it is. And as long as Europe's problems stay Europe's problems, meaning their economic woes don't drag the U.S. into a recession, then the investing landscape looks bullish for U.S.-focused equities.

Why? Because the recent economic data, although not stellar, has been "good enough" to drive strong corporate earnings, as we saw this past earnings season. And with the S&P now trading at just 12.1x forward four quarters earnings estimates, stocks look awfully attractive compared to the paltry returns of other asset classes like cash, bonds or real estate.

Price and Fundamentals Diverging

The recent stock market pullback has indiscriminately dragged down some stocks that otherwise should be marching higher. I ran a screen for companies that (1) delivered strong first quarter revenue and earnings surprises, (2) have had strong positive earnings estimate revisions, but (3) have sold off more than -10% over the last month.

This decoupling of price and fundamentals could prove to be a wonderful buying opportunity if the U.S. economy continues to at least slowly improve.

Here are 4 stocks that look oversold right now:

Cabela's (CAB - Analyst Report) - Analyst Report)

Cabela's is a growing specialty retailer focused on hunting, fishing, camping and other outdoor recreation merchandise. The company has delivered 4 consecutive positive earnings surprises, including a strong revenue and earnings beat in late April driven by a 4.2% increase in same-store sales. Consensus estimates have been soaring ever since, sending the stock to a Zacks #1 Rank (Strong Buy).

Despite the strong fundamentals, shares have sold off this month along with the overall market. The stock now trades at just 12.6x 12-month forward earnings, and it sports a PEG ratio of 0.9 based on a consensus long-term growth rate of 14.3%.

Titan Machinery (TITN - Snapshot Report) - Snapshot Report)

Titan delivered a blowout quarter in April with revenue soaring 65% to $607 million, crushing the consensus of $439 million. And EPS jumped 47% to 84 cents, easily beating the Zacks Consensus Estimate of 53 cents.

Earnings estimates soared, sending the stock to a Zacks #1 Rank (Strong Buy) stock. The stock was soaring too, until European concerns caused the overall market, and Titan, to selloff.

But shares of TITN look awfully attractive now trading at just 11.0x 12-month forward earnings, a discount to its historical median of 13.1x.

Trinity Industries (TRN - Snapshot Report) - Snapshot Report)

Trinity has gotten beaten up during the pullback too. But this isn't due to any company-specific problems. The company, which manufactures railroad, marine and structural products, delivered a huge earnings surprise on April 25 driven by a 46% surge in revenue.

And management provided bullish guidance for the remainder of the year, prompting analysts to revise their estimates higher. This sent the stock to a Zacks #1 Rank (Strong Buy).

Shares are now trading at just 7.9x 12-month forward earnings, well below its 10-year median of 18.4x. If the company can deliver on management's earnings guidance, this stock warrants a much higher multiple.

Wesco International (WCC - Analyst Report) - Analyst Report)

Wesco delivered a strong 'beat & raise' quarter in late April that has gotten almost completely overlooked by a nervous market. The company provides electrical, industrial, and communications maintenance, repair, and operations (MRO) and OEM products. It is a Zacks #1 Rank (Strong Buy) stock.

Despite the strong earnings momentum, shares have fallen sharply this month. Valuation looks awfully attractive with the stock trading at just 11.1x forward earnings. Its PEG ratio is just below 1.0 based on a consensus long-term EPS growth rate of 11.5%.

The Bottom Line

These 4 stocks have been punished not because of their fundamentals but because of a fearful stock market. If concerns over Europe's problems spreading to the U.S. turn out to be overblown, look for these same stocks to rally the fastest.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor Service.

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