We found some interesting investment ideas today that we are considering for our portfolio. As usual, we decided to share these ideas with readers. These 5 ideas represent a very small part of our current watch list. We hope to profile our entire watch list, over the next year, in many similar list articles. Hopefully, this article will bring some new ideas to our readers' attention.
Our screening criteria is based on valuation (PE ratio) and our own opinion about a company's future prospects. The following stocks were selected by performing a stock screen for low PE ratio stocks, in the 5 to 11 PE range, and then doing some investigating of the individual companies to find 5 companies that may be good investment candidates. This process is somewhat subjective and is based on our opinion of a company's valuation and our opinion of catalysts that may drive a company's shares higher in the near future. In conclusion, We like these 5 ideas and we look forward to your feedback.
Helen of Troy (HELE)
Helen of Troy designs, markets, and manufactures a broad array of personal care and household products. Many of these products are sold under licensed trademarks such as Vidal Sassoon, Honeywell, Braun, Vicks, Sunbeam, and Revlon. Also, Helen of Troy has many of its own brands such as OXO, Brut, Helen of Troy, Belson, HotSpa and PUR. We believe that Helen of Troy shares are cheap with a TTM PE ratio of 10.3 and a forward (2014) PE ratio of 10.2. Additionally, Helen of Troy has a PEG ratio of 0.69 and a price to book ratio of 1.27.
In our opinion, Helen of Troy has an attractive assortment of company owned brands/products as well as attractive licensing agreements with well known brands. One brand of interest is Helen of Troy's December 2011 acquisition of PUR Water Purification Products from Proctor & Gamble (PG). With clean water becoming a growing issue in many parts of the world, we believe that PUR's share of the ever increasing global water purification industry should bode well for Helen of Troy's business. The only negative that we see for Helen of Troy is that earnings growth has been slowing as of late. We think that Helen of Troy will remedy this situation with restructuring, cost cutting, improved logistics, and more efficient marketing.
Brooks Automation (BRKS)
Brooks Automation manufactures products such as robotic automation equipment used in the semiconductor industry. Also, the company manufactures equipment to provide inert gas or vacuum atmospheres for use in the manufacture of semiconductors. We think that Brooks Automation is a good value with a TTM PE ratio of 5.69 and a price to book ratio of just 1.05.
Analysts expect revenues to decline about 8% in 2013 but we think that this is an opportunity for investors. Next year, we believe that Brooks Automation will grow revenues about 25% as semiconductor manufacturers, such as flash memory manufacturers, expand capacity to meet demand for tablets and mobile devices. In our opinion, it may be a wise investment to buy Brooks Automation while it is suffering a minor slump in revenues before revenues ramp-up next year. As an additional kicker, Brooks Automation as an attractive dividend yield of 3.20%, so an investor is paid to wait for Brooks Automation's business to turn around.
Fabrinet provides manufacturing services for original equipment manufacturers of complex optical, electro-mechanical, and electrical devices. We believe that Fabrinet is inexpensive at the current price. With a TTM PE ratio of 7.79, EV/EBITDA ratio of 6.57, and a PEG ratio of 1.12, Fabrinet shares may have a lot of room to run. Also, Fabrinet has a solid balance sheet with $157.48 million in cash and $31.33 million in debt relative to an EBITDA of $54.05 million.
We think that Fabrinet has a steady business that can survive bad economic times as well as strive in good economic times. In our view, as the United States economy improves, Fabrinet will grow at a faster rate than most companies in its industry. With the world becoming increasingly more connected with high-tech devices, companies such as Fabrinet should have a growing business for years to come.
HNZ Group (OTC:CDHPF)
HNZ Group operates a fleet of 130 helicopters which provide transportation services around the globe. Also, HNZ Group provides helicopter maintenance and repair services as well as flight training for helicopter pilots. HNZ Group supports a broad range of services to the oil and gas industry, the United States military, aerial heavy-lift projects, and forest fire suppression efforts. The company is selling for 6.85 times TTM earnings and has a PEG ratio of 1.23. Furthermore, HNZ Group has a solid balance sheet with $4.12 million in cash and $40.61 million in debt relative to an EBITDA of $78.55 million.
We think that HNZ Group is well positioned to take advantage of the increasing trend in offshore oil and gas exploration operations. In particular, we are excited about HNZ Group's future opportunities in the Gulf of Mexico when the United States Government finally relaxes the moratorium on new projects in the Gulf of Mexico. We see a bright future for HNZ Group as the need for oil is pushing exploration into more remote regions of the world were helicopter transportation is a must. HNZ should benefit as the guest for oil demands exploration farther from shore and farther from adequate roadways.
Pitney Bowes (PBI)
Pitney Bowes provides mail processing systems and equipment to businesses around the world. Our main interest in Pitney Bowes is that the markets seem to have a generally negative outlook for Pitney Bowes' business. We think that Pitney Bowes' business is currently in a stable situation while the economy of the United States continues to recover. At some point, we think a solid economic recovery will emerge that will help Pitney Bowes return to a condition where its earnings will grow at a moderate rate.
Also, Pitney Bowes is a highly levered company with a large but manageable debt burden. We like highly levered large companies, with steady cash flow, that can create shareholder value through deleveraging their balance sheets. Recently, Pitney Bowes slashed its dividend in half thus freeing-up resources to repay debt. Historically, highly leveraged, large companies with strong cash flow have had a good track record in regards to repaying debt. This is often forgotten by the markets which usually overlook the potential value creation that can occur through deleveraging a company.
Furthermore, we like that Pitney Bowes' CEO bought just over $1 million worth of Pitney Bowes stock on May 7, 2013. Insider purchases are a strong sign that the insiders know that the company's business is set to improve in the near future. In our opinion, Pitney Bowes is an inexpensive stock (forward 2014 PE ratio of 8.01) that has the potential for major investment returns based on insider activity and the potential for significant deleveraging of the company's balance sheet.
Disclaimer: Ulfberht Capital is not an investment advisor. This article is not a recommendation to buy or sell securities. Always consult your investment advisor before making any investment decision.