In yesterday’s commentary we featured a handful of the stock market’s industries that may be ready to rally or sell off, as the case may be. We also mentioned we were going to try and find a few stock trading ideas from within the group - preferably a small or micro cap, and ideally, an undervalued and unknown company.

The opportunity that caught our eye a little better than any other is the potential recovery in the consumer electronics arena. These stocks are still down by 46% for the last twelve months (which was basically the worst of any of the groups), yet these same stocks are up 8% for the last two weeks (which is among the best). So, clearly something has changed for the better here.

The chart of the Dow Jones Consumer Electronics Index (DJUSCE) shows a terrible start to 2008, not to mention a terrible last half of 2008. However, that may mean the recovery is just that much bigger, if the last few days is a hint of things to come. 

From a fundamental point of view, Universal Electronics (UEIC) looks like a bargain. This micro-cap company’s P/E is 17.7, with a P/S ratio of 1.23. None of its valuation measures are jaw-dropping, but all of them are solid. What’s most interesting here is the rather high short interest of 11.2%. A little strength could prompt a brief short-covering rally.

The only big downside we see is the chart. We saw a rebound attempt earlier in the year, but the stock gave up a little too much ground when it failed to crawl back above the 200 day moving average line in April. This past week we’ve seen volume pick up a little, but not enough to get it over the hump.

Though the fundamentals are outstanding, the technicals are still telling us ‘not yet’. We’ll keep it on the radar.

As far as a technical pick is concerned, Sanyo Electronics (SANYY) might be a good bet. It’s just now coming out of a long-term oversold situation, but hasn’t bolted out of the gate. More importantly, for the first time in a long time we’re seeing this ADR make higher highs and higher lows. And, bullish volume has been flowing at least a little more consistently.

In the very short-term we view SANYY as a little overbought, so don’t be surprised to see it ease back slightly from the recent high of 13.70. As long as it catches itself early and starts to recover well, a dip may be a good entry opportunity into what could be a longer-term uptrend.

As always, cross referencing a chart with the company’s underlying fundamentals is a good idea. We didn’t do this for Sanyo due to time restraints, but you may want to invest the time.

Of course, these two stocks aren’t the only two possibilities within the world of consumer electronics. Other stocks also have to be helping the industry index move upward. Maybe one of those is an even better choice. We just wanted to get some trading ideas flowing.

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