As the sharemarket flirts with a technical correction, many investors will look for beaten-up stocks that offer better value. Often, they buy stocks that are still overvalued because their perception of value is anchored in past share prices. They inevitably “catch a falling knife”.

A less-considered strategy is buying stocks that rally during sharemarket sell-offs, such as the latest one, where the S&P/ASX 200 index has fallen almost 10 per cent. It is invariably a good sign when high-quality stocks power ahead during bouts of market weakness.

Some might liken this strategy to momentum trading, where chartists buy rising stocks that are making higher highs, and higher lows. I prefer fundamental over technical analysis, but understand the merits of buying stocks in price uptrends and avoiding those in downtrends.

This strategy can almost be counterintuitive for value investors. As they buy stocks that have fallen, the smart money piles into high-quality stocks that are rising, have significant earnings momentum and remain undervalued, even after recent price gains.

Here are three stocks that fit these criteria:

1.  iSentia Group

The media-monitoring group has barely missed a beat since it listed on ASX in June 2014 after raising $284 million at $2.04 a share. iSentia peaked at $3.83 during the sell-off in May – a mighty effort for a stock that just had its first-year listing anniversary.

I outlined a positive view on iSentia Group for The Bull in November 2014, in “Fast-growth tech stock with promising future”. It has rallied from about $2.80 to $3.66 since that article after exceeding market expectations with its interim result in February.

iSentia provides media monitoring, social-media monitoring and analysis, media management and analysis, contract-management services around communication strategies, and media-release distribution. As I have written before, iSentia is essentially a fast-growth technology company with valuable, scalable software and systems.

The company has good long-term prospects.  Its business model is highly scalable, it is the clear market leader in its industry, it has gained a strong foothold overseas, it is benefiting from changing market trends as companies seek to understand online consumer preferences in real time, and it has operationally performed well since listing.

Granted, iSentia is not cheap after strong price gains this year. Of the four brokers that cover it for consensus forecasts, two have a buy and two have a hold recommendation. A median price target of $3.42 suggests iSentia is fully valued at the current price.

It is due for a pullback or consolidation after such strong gains. But prices above $4 later this year or early next are possible as the market pays a higher valuation multiple for its earnings. This is a quality technology company in an excellent industry.

2. oOh media Group

The outdoor advertising company has been another standout performer this year, peaking at $2.75 in May before easing to $2.47.  It started the year around $2.

oOh media caught my eye when it listed on ASX in December 2014, raising $168.8 million at $1.93 a share, and I wrote about it and APN Outdoor Group for The Bull in February 2015, in “2 media stocks bucking the trend”. It has rallied about 10 per cent since that story.

The Nine Entertainment Co. Holdings’ earnings downgrade this week reinforced the quickening fragmentation of traditional media and raised fears that free-to-air-television is rapidly approaching a tipping point, similar to print media, as audiences watch content on other stgices.

oOh Media is in a growth segment of media as out-of-home advertising lifts it share of the total advertising market and as greater uptake of digital signage boosts earnings. This advertising market has bigger barriers to entry and potential for higher profits margins as companies use moving billboards that can provide information for hand-held mobile stgices.

At $2.47, oOh media trades on a forecast Price Earnings (PE) multiple of about 22 times, based on the consensus of a small number of analyst forecasts. It’s not cheap. But I doubt the market fully recognises how technology could transform out-of-home advertising.  

3. Freelancer

The micro-jobs platform had a rollercoaster ride after listing on ASX in November 2013. It raised $15 million in an IPO at 50¢ a share, soared to $2.50 on debut and slumped to 73¢ eight months later as inefficient stock allocation weighed on its price.

Freelancer roared back to $1.25 from mid-2014 lows, rising almost 20 per cent in May as the broader market slumped. Some good small-cap judges, such as Avoca Investment Management, have bought its stock this year.

As with all good technology disruptors, Freelancer is hard to value. It has a strong position in the global micro-jobs market, where Western companies typically recruit service workers in emerging markets for projects at lower cost, and the ability to fund years of stgelopment through its cash-flow growth. It can also ease back on investment if growth slows.

Like iSentia and oOh Media, Freelancer is poised to deliver further share-price gains this year, particularly in the back half of the year. Each stock suits experienced long-term investors who are comfortable with small and medium-size companies and prepared to pay higher valuation multiples for higher growth.

Tony Featherstone is a former managing editor of BRW and Shares magazines. This column does not imply any stock recommendations or offer financial advice. Readers should do further research of their own or talk to their adviser before acting on themes in this article. All prices and analysis at June 11, 2015.