Last week, I wrote Round 7 of this article in which I listed and reviewed three low-priced stocks that I believed were worth buying. The stocks I reviewed in Round 7 were AK Steel Corporation (AKS), JetBlue Airways Corporation (JBLU), and Select Medical Holdings Corporation (SEM). Round 5 and Round 6 stock selections and reviews can be found here and here.
For Round 8, I will once again focus on stocks that are currently priced at under $10. In determining why I find these stocks attractive, I will be looking at each company's financial performance, current valuation, recent trading activity, earnings, dividend policy, and future outlook.
Stock No. 1
MFC Industrial Ltd. (MIL) is a commodities supply chain company that sources and delivers commodities and materials to clients. It operates in the following three different segments: commodities and resources; merchant banking; and other. MIL was incorporated in 1951 and is based in Vancouver, Canada.
|Gross Profit Margin (Quarterly)||9.65%|
|Profit Margin (Quarterly)||3.24%|
|Return on Assets (TTM)||-0.53%|
|Return on Equity (TTM)||-0.95%|
|Quarterly Revenue Growth (YOY)||79.51%|
Looking at the chart below, you can see that MIL's revenue has increased substantially since early 2011 (a 723% increase over that time period).
MIL Revenue (TTM) data by YCharts
During this time, the company's profit has increased as well, but nearly as much (a 178.7% increase over the same time period, with most of that growth occurring in 2011).
Current Valuation and Recent Trading Activity
MIL has a current price-to-sales value of 0.67x and a price-to-book value of 0.64x.
You can see from the chart below that both values are on the low end when compared to the company's recent history.
MIL PS Ratio (TTM) data by YCharts
MIL closed Tuesday at $7.50, $2.89 shy of its 52-week high and marking the stock's 52-week low. It is trading below both its 200-day moving average of $8.37 and right at its 50-day moving average of $8.25.
MIL has seen the following price returns:
|1 Month Price Return||-13.35%|
|Year to Date Price Return||-11.93%|
|1 Year Price Return||-6.46%|
|3 Year Price Return||-4.32%|
Today, MIL saw an unusually high amount of trading volume. Approximately 621,700 shares changed hands, which is a 600% increase over its 65-day average volume. The stock fell $0.49 or 6.1% today.
For its latest quarter, MIL reported earnings per share of $0.11. This was a huge drop from the same period last year that saw earnings per share of $3.58. This large discrepancy is mainly related to a pair of specific events. The major item being the recognition of a bargain purchase of $225.2 million, or $3.60 per share, in 2012. Also, MIL realized higher costs due to a massive flood in Alberta (one of the worst floods in Canada's history).
MIL currently pays a $0.06 quarterly dividend. This is 9% higher than the company's 2012 dividend and currently yields 3.18%.
While some of MIL's financials may not look that impressive, I believe that the company's future is looking positive. In the 1st three quarters of 2013, the company has increased revenue by over 58% compared to the same period last year. Recently, MIL entered into an agreement with a local operator to develop oil and gas properties in the Niton area of Alberta. This agreement should help improve MIL's bottom line during the three year term.
MIL is also addressing profitability and development issues with its marginal wells. I think the strategy the company outlined in its latest quarterly report will go a long way in ensuring future growth through cost reduction and optimization initiatives.
I think MIL's recent drop in stock price has presented a perfect buying opportunity for long term investors.
Stock No. 2
Office Depot Inc. (ODP) is a global supplier of office products and services through its three main divisions: North American Retail Division, North American Business Solutions Division, and International Division. ODP was founded in 1986 and is headquartered in Boca Raton, Florida.
|Gross Profit Margin (Quarterly)||24.16%|
|Profit Margin (Quarterly)||6.14%|
|Return on Assets||2.42%|
|Return on Equity||13.97%|
|Quarterly Revenue Growth (YOY)||-2.73%|
ODP's financial performance over the past several years has not been anything to get excited about. The company has seen a fairly steady decline in both revenue and profit.
ODP Revenue (TTM) data by YCharts
Current Valuation and Recent Trading Activity
ODP has a price to earnings value of 90.58x and a price to book value of 1.94x.
ODP closed Tuesday at $5.23, $0.87 shy of its 52-week high and $2.29 higher than its 52-week low. The stock is trading below its 50-day moving average of $5.28 but ahead of its 200-day moving average of $4.52.
ODP has seen the following price returns:
|1 Month Price Return||-4.30%|
|Year to Date Price Return||59.30%|
|1 Year Price Return||87.28%|
|3 Year Price Return||11.65%|
For its last quarter, ODP reported adjusted earnings per share of $0.02. This was 4 cents shy of estimates. Looking at the chart below, you can see that ODP's earnings have been fairly stagnant the last couple of years.
ODP EPS Basic (TTM) data by YCharts
The main influence on ODP's future is the recent merger with OfficeMax. This was enough for Bank of America to upgrade ODP to a buy with expected earnings of $0.32 in 2014 and $0.54 in 2015. ODP's new CEO has been able to increase operating profit and create successful futures for past company's he has worked for. I think he, along with the ODP management team, will be able to do the same here.
I think the recent merger will help solidify some of ODP's past weaknesses such as poor margins and cash flow, while improving on the company's past record of increased revenues and income. The future success of ODP is hardly set in stone, as the retail industry can change very quickly, but I believe that the company is poised to see continued growth and improvement in the similar fashion to Best Buy's fairly recent turnaround.
I think that ODP's recent drop in price (from a high of $5.77 at the beginning of the month) has created a buying opportunity similar to that of MIL.
Stock No. 3
Two Harbors Investment Corp. (TWO) is a real estate investment trust that invests in residential mortgage-backed securities, residential mortgage loans and other financial assets. TWO was incorporated in 2009 and is headquartered in Minnetonka, Minnesota.
|Profit Margin (Quarterly)||-139.7%|
|Return on Assets||2.92%|
|Return on Equity||14.28%|
|Quarterly Revenue Growth (YOY)||9.24%|
Looking at the chart below, you can see that TWO's increase in revenue and gross profit have been consistent and impressive over the past five years.
TWO Revenue (TTM) data by YCharts
Current Valuation and Recent Trading Activity
TWO has a current price to earnings value of 5.60x and a price to book value of 0.89x.
TWO closed Tuesday at $9.16, $3.89 shy of its 52-week high and $0.21 higher than its 52-week low. The stock is trading lower than both its 50-day moving average of $9.51 and its 200-day moving average of $10.14.
TWO has seen the following price returns:
|1 Month Price Return||-4.53%|
|Year to Date Price Return||-11.11%|
|1 Year Price Return||-10.55%|
|3 Year Price Return||1.74%|
For its last quarterly report, TWO reported core earnings of $0.19 per share. This was 5 cents less than estimates, but a 19 cent increase over the same period last year.
Looking at the chart below, you can see that TWO's recent earnings history is kind of up and down, with an inability to make sustained progress towards earnings growth.
TWO EPS Basic (TTM) data by YCharts
The real reason to own TWO stock, is its dividend. The company currently pays a $0.28 quarterly dividend. The dividend currently yields over 12%, making it very attractive to dividend investors. While TWO has decreased its dividend several times in the past few years, the cuts haven't been as drastic as some other REITs out there. Currently at $0.28 a quarter, it is down from the $0.40 a quarter dividend that was paid late 2010, all of 2011, and early 2012, but it still remains ahead of TWO's $0.26 quarterly dividend at the end of 2009.
I'm not the only who thinks that TWO has a solid outlook as Sterne Agee recently upgraded the company to buy. TWO recently entered into a flow sale agreement with PHH Mortgage and continues to reward shareholders not only with a high yielding dividend but also through its share repurchase program. During the last two quarters, TWO has repurchased 2.45 million shares and has strong capacity to continue repurchasing shares.
I think that TWO will continue to see rises in returns on equity and assets and provide generous overall returns to long term shareholders.
Each of the three stocks reviewed above are potential buys for long term investors in my opinion with each one having its own specific strengths and opportunities for buyers. MIL has a strong history of increasing revenues and it is primed to translate that increased revenue into earnings growth as it diversifies its opportunities (through partnerships, etc.) while optimizing operations. ODP's recent merger with OfficeMax has created a perfect opportunity for the company to improve past weak areas such as poor margins, etc. by reducing costs with a more streamlined and less obstructive operations workflow. As a REIT, TWO is a risky option for long term investors, but I believe that with its double digit dividend yield and its strong history of increased revenues, TWO should be considered. As always I suggest any individual investor perform their own research before making any investment decisions.