This is part 3 of a 4 part series looking at each of the companies selected and listed by Fortune in their 2009 Fortune 40: The Best Stocks to Retire On list.
Deep Value Stock Selection
“It’s easy to find beaten-down stocks these days. But unearthing battered shares that deliver steady earnings growth, pay dividends, and have little debt - well, that’s a challenge. That’s what Benjamin Graham sought and what our deep-value portfolio aims for too. We look for companies whose stock prices have been punished by short-term problems but whose fundamentals are strong and could reward patient investors with reliable growth.” - Fortune
My definition and Fortune’s definition of deep value are vastly different, but Fortune’s pick of deep value stocks was down 6.7% compared to the market's 30.1%. This is a tremendous feat so I’ll be keen to see how this year's round of deep value selections will fare.
Except for two stocks, CSL & RBC, this group is completely new as the 2008 picks have outgrown their deep value status.
40 Best Retirement Stocks: No.21-30
- Carlisle Companies (CSL)
- Noble Corp (NE)
- Regal Beloit Corp (RBC)
- Valmont Industries (VAL)
- WW Grainger (GWW)
- AAon Inc (AAON)
- Exponent Inc (EXPO)
- Lincoln Educational Services (LINC)
- Merit Medical Systems Inc (MMSI)
- Neogen Corp (NEOG)
CSL does still seem like an undervalued stock.
Carlisle Companies Commentary
Although the FCF growth and CROIC for CSL is on the low side, the margins are consistent and have a good margin of safety which is important for any stock to be worthy of holding in retirement.
Carlisle Companies Incorporated (Carlisle) is a holding company for Carlisle Corporation. Carlisle is a diversified manufacturing company, which manufactures and distributes a range of products. They operate in the construction materials, transportation products and applied technologies segment that includes the food service products.
- Stock price as of July 7: $24.09
- Discounted Cash Flow Fair Value: $35.27
- Graham Value: $70
NE is interesting and I believe it to be a good pick.
Noble Corporation is an offshore drilling contractor for the oil and gas industry. The Company performs contract drilling services with its fleet of 63 mobile offshore drilling units located worldwide. This fleet consists of 13 semisubmersibles, four dynamically positioned drillships, 43 jackups and three submersibles.
Noble’s investment in growth in 2007 can be seen by the 300% increase in maintenance capex which resulted in close to a 300% increase in FCF when comparing with 2006 just before the growth in capex.
This is a direct competitor to Atwood Oceanics (ATW) but looking at its financial position and portfolio of rigs, it looks like the company has plenty of room to grow in the deep water drilling industry. It has a good backlog of contracts as well as contracts with Petrobras (PBR) which should provide a nice revenue stream.
I’m not into commodities or macro economics but I see oil prices rising sooner or later. I’m not going to get into a guessing game of when or to what price oil will go, but if oil remains above $60 per barrel, this price should be high enough to produce good margins and consistent profits for the drillers.
I originally looked into Transocean (RIG), Diamond Offshore Drilling (DO), NE and ATW when selecting my oil driller but chose ATW for its size and growth potential.
- Stock price as of July 7: $28.57
- Discounted Cash Flow Fair Value: $27.61
- Graham Value: $90.40
Exponent, Inc. is a science and engineering consulting firm that provides solutions to complex problems. As of January 2, 2009, the Company operated 21 practices and centers, including Biomechanics, Buildings & Structures, Civil Engineering, Construction Consulting, Ecological & Biological Sciences, Electrical & Semiconductors, Engineering Management Consulting, Environmental & Earth Sciences, Health Sciences, Human Factors, Industrial Structures, Mechanical Engineering & Materials Science, Statistical & Data Sciences, Technology Development, Thermal Sciences, Vehicle Analysis and Visual Communications.
- Stock price as of July 7: $24.41
- Discounted Cash Flow Fair Value: $25.45
- Graham Value: $48.06
- Comments: With increasing margins, great FCF growth and an equally impressive CROIC, EXPO looks to be a great company at a fair price.
This was a previous holding of mine. I previously bought at around $14 or so and sold when it hit $19 which was in the vicinity of my estimated intrinsic value. This was actually a stock that I was trying to enter and exit several times but I’m always slow when it comes to buying and selling so I missed my buy points on a couple of occasions and it hasn’t come down since. I don’t plan on buying NTRI unless it came down below $11 again. Nevertheless, it remains on my short term watchlist.
NutriSystem, Inc. is a provider of a weight management system based on a portion-controlled, prepared meal program. The Company provides a weight management program, consisting primarily of a pre-packaged food program and counseling.
- Stock price as of July 7: $14.20
- Discounted Cash Flow Fair Value: $19.01
- Graham Value: Earnings growth too high and fast to be reliable
- Comments: Growth seems to have caught up even before the recession. Sales, margins, returns, book value all declining.
Disclosure: I hold ATW at the time of writing.