Buying Growth At A Reasonable Price

Includes: AAPL, ANTM, ATW, TGI
by: Bret Jensen

"It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong." - George Soros

The market just completed the best first quarter for performance since 1998. Bargains in stocks are getting harder come by since the large run up from the post-election lows in November. I think investors should focus the growth allocation in their portfolios to equities that are cheaper than the overall market while growing revenues at a higher rate than the market as a whole. This is commonly called buying growth at a reasonable price. Here are four selections that have five year projected PEGs of under 1, are cheap and are predicted to have solid revenue growth in the years ahead.

Wellpoint (WLP) - The largest managed care company in the U.S., WellPoint serves over 36mm members, mainly under the Blue Cross and/or Blue Shield license in 14 states.

4 reasons WLP is undervalued at $66 a share:

  1. Analysts expect almost 20% revenue growth this year and over 8% sales increases in FY2014. The stock sports a five year projected PEG of just .71.
  2. The stock is also selling at just 84% of book value and just over 7x operating cash flow.
  3. The company has an A- credit rating, yields 2.3% and has approximately $5B of net cash on the balance (25% of its current market value).
  4. WLP sells for just over 8x this year's expected earnings and has easily beating earnings estimates in each of the last two quarters.

Triumph Group (NYSE:TGI) designs and manufacturers aero structures, aircraft components, accessories, subassemblies, and systems worldwide.

4 reasons TGI is a good value at $78 a share:

  1. Analysts expect revenues to increase at better than a 8% CAGR over the next two years. The stock sports a five year projected PEG of under 1 (.91).
  2. The company has grown revenues and earnings at better than a 20% CAGR over the last five years (the strategic acquisition of Vought Industries in 2010 provided a significant contribution to this growth) yet the stock is selling for less than 12x forward earnings.
  3. S&P has its highest rating "Strong Buy" and Credit Suisse has an "Outperform" rating on the shares.
  4. A couple of insiders bought around $900k worth of shares in February and the company has grown its operating cash by some 90% over the past three years.

Atwood Oceanics (NYSE:ATW) is an offshore drilling contractor that engages in the drilling and completion of exploratory and developmental oil and gas wells.

4 reason ATW has upside from $52 a share:

  1. Analysts expect revenue to grow at better than a 25% CAGR over the next two years. The stock sports a five year projected PEG of just .52.
  2. Despite the over 30% revenue growth expected this fiscal year, ATW sells for just 10.5x this year's expected earnings.
  3. Credit Suisse has an "outperform" rating on the stock and believes the company can achieve over $8 a share in earnings by FY2015.
  4. Analysts have been slow to catch up with Atwood's earnings power. The company has easily beat earnings estimates each of the last four quarters. The average beat over consensus earnings estimates has averaged 15% over that time span.

Apple (NASDAQ:AAPL) is the iconic maker of iPhones, iPads, iPods, iMacs and other consumer electronics.

4 reasons AAPL is significantly undervalued at $442 a share:

  1. The days of 50% revenue growth are over. However, analysts still expect sales to increase at around a 15% CAGR over the next two years. AAPL sports one of lowest five year projected PEGs (.53) for companies above a $50B market capitalization.
  2. The company has almost $140B in net cash and market securities on the books (over 30% of current market capitalization).
  3. Subtracting cash, AAPL is selling for less than 6x expected 2014's earnings. The median price target by the 46 analysts that cover the shares is $600 a share.
  4. The stock is selling at the bottom of its five year valuation range based on P/E, P/B, P/CF and P/S. AAPL also yields 2.3% and a major dividend hike is expected to be announced soon.

Disclosure: I am long AAPL, ATW. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.