I recently became interested in running a screen based on a few of the fundamental metrics I typically use as my main reference points, but started instead with the wider market to see how many different equities would pass muster. I did not expect many to pass, and in fact, none did pass on all 7 metrics, but I did find a total of 8* that passed the first 5, as I will demonstrate below.
The metrics I consider the most crucial when making completely metric-based analysis and have used in this screen I will detail now.
PEG Ratio: In this case, I limited it to shares below a ratio of 2. In my most-recently posted accumulation portfolios, I expanded this to 2.33, but in most cases, I would prefer to keep this below 2.
Price/Book Ratio: I do not normally have a set-in-stone number that would be a pass-fail here, but in the matter of this screen, I decided to focus only on equities with a P/B of less than 1 so as to hopefully find value picks.
Dividend Yield: Traditionally, I have used the Coca-Cola (NYSE:KO) cut-off. Ironically, and completely inadvertently, I chose +3% as the pass point here, and I just looked and saw KO currently sits at 3.01%.
Payout Ratio: I used "under 50%" in this screen. After getting the results the first time around, I tried again removing the payout ratio altogether, and my original hunch was proven correct, when several BDC/REITs joined the existing group below. It was my intention to negate these results, as my portfolio is already heavily-weighted with BDC and REIT stocks which have very high payout ratios, and I wanted to achieve a bit of a different composition here.
Analyst Opinion Mean Recommendation: I chose "Buy or Better" here, which would mean a score of 2.5-1.
These next two metrics I omitted once the combined result had no results. In the descriptions to follow, I will highlight the individual stocks which would have passed one or the other.
Insider Transactions: This I set for "positive."
Institutional Transactions: This I set for "positive."
Now for the list of equities which have passed what I am calling my "Quick Z" screen. I am listing them in order of the dividend yield, but in any case, the order in which they appear is arbitrary. All metrics are taken from Yahoo Finance unless otherwise noted.
Quick Z Screen Results:
Garrison Capital INC (NASDAQ:GARS): GARS is a Business Development Company which provides its shareholders with current income and capital appreciation through debt and minority equity investments in middle-market companies. GARS first started trading on March 27, 2013, and has lost about 7.78% over the trailing twelve months. It is currently trading about 4% below the 52-week high.
Looking at GARS through my prism, it ended up at the top of this list with the high dividend yield of 9.91%, a PEG ratio of 1.86 and a Price/Book of 0.93. Institutional ownership has been increasing despite a large divestiture by insider holders Garrison Investment Group (selling over 607k shares by from January 1-April 23 of this year). The consensus 1-year target price of 15.67 is a 11% increase on the previous close of 14.13. The Analyst Opinion Mean Recommendation is 1.7, suggesting that analysts are quite bullish on GARS going into today's Q1 earnings release after the bell.
Other areas of particular strength for GARS are in significant EPS gains, both this year and quarter-on-quarter. Gross, Operating, and Profit margins are all quite high (63.5%/58.6%/69.8%) and Return on Equity is 10.2% (per Finviz.com). The dividend payout ratio was at the very upper-end of this screen, coming in at 44.7% (per Finviz.com).
Harvest Capital Credit Corporation (NASDAQ:HCAP): HCAP is a Business Development Company which provides shareholders current income and capital appreciation by making direct investments in privately-held United States small to mid-sized companies. HCAP first started trading on May 3, 2013 and has lost about 3.93% over the trailing twelve months. It is currently trading about 6.5% below the 52-week high.
HCAP pays a dividend of 9.36% on the current price and sports a PEG of 1.95 and Price/Book of 0.98, both just barely passing the screen. Like GARS, HCAP has been increasing Institutional ownership while insider holders are selling, even if not at the same degree. The consensus 1-year target price of 16.75 is a 16% increase on the previous close of 14.42. The Analyst Opinion Mean Recommendation is 1.3, suggesting that analysts are highly bullish on HCAP going into the Q1 earnings release on May 14, 2014.
Other areas HCAP shows particular strength are in a Price/Cash ratio of 2.29, no long-term debt, Gross Margin of 69.4%, and Operating Margin of 55.6%. EPS this year and Sales Growth year-over-year have shown triple-digit growth in the most recent filings.
Petroleo Brasileiro SA Petrobras (NYSE:PBR): PBR is a Brazil-based integrated oil and gas company. Interesting to note is that in the trailing twelve months PBR has had a $USD normalized net income of 12.10B, which is over 60% of the net income of Chevron (NYSE:CVX) over the same period, but with only 42.7% of the market cap. PBR has seen a more than 20% slide in the last 52 weeks and is currently trading about 20% below the 52-week high.
With a dividend of 4.87%, PBR is on the higher side of the oil and gas industry's dividend range [compared to 3.42% for CVX and 2.7% for Exxon (NYSE:XOM), for example]. What makes PBR particularly compelling, both in my screen and in comparison to its more widely-known domestic comparisons or other worldwide industry peers, is the combination of a <1 PEG of 0.67 and Price/Book ratio of 0.65. If the Price/Book is to be used as fair market value, PBR is trading at a 35% discount, which is considerable for the industry and a definite opportunity for value investing. The quick ratio is 1.5 and the current ratio is 2, suggests foreseeable financial viability. Institutional ownership has decreased slightly in the most recent period, and insider ownership/transactions were not available for the screener (and thus completely ignored on my part).
The consensus 1-year target price of 18.46 is a 22% increase on the previous close of 15.18. PBR's Gross Margin is 23.8%, Operating Margin is 11.3% and the Net Profit Margin is 8.5%, all not as good when compared to CVX. The Analyst Opinion Mean Recommendation is 2.4, suggesting that analysts are not quite as bullish on PBR as other stocks included on this list.
MVC Capital, Inc. (NYSE:MVC): MVC is a Business Development Company that invests in mature, small, and middle-market companies. MVC has had a 1.31% loss over the last 52 weeks after gaining 10.27% in total in 2013 and is currently trading at more than 13% below the 52-week high. The consensus 1-year target price of 16.75 is a 30% increase on the previous close of 12.88.
The PEG ratio is 0.62 and Price/Book is 0.67, with the dividend at 4.19% where the stock sits currently. EPS growth is forecast for this year and next year, which would be a sharp turnaround to the disappointing EPS loss over the last 5 years to go with decreasing sales during the same period. The Analyst Opinion Mean Recommendation is 2.3, suggesting that analysts are happy with the aggressive buybacks MVC has been making recently. The lack of insider purchases prevented MVC from passing the screen on all metrics.
Silicon Motion Technology Corp. (NASDAQ:SIMO): SIMO designs, develops, and markets semiconductor solutions for mobile storage and mobile communications markets. SIMO has seen price appreciation of almost 35% over the last 52 weeks, but currently trades at just 16% below the 52-week high, suggesting strong price appreciation is possible in the near-term. The consensus 1-year target price of 21.07 is a 35% increase on the previous close of 15.57.
The PEG ratio is 0.29 and Price/Book is 0.47, with the dividend at 3.85% where the stock sits currently. Institutional ownership has increased slightly over the most recent period, and the lack of insider information prevented this stock from being measured via this metric on the screen. The Analyst Opinion Mean Recommendation is 2.0, suggesting that analysts are bullish on SIMO after the April 29th earnings release. SIMO's Gross Margin is 47.3%, Operating Margin is 15.6% and the Net Profit Margin is 12.15%, while the Return On Equity is 10.27%.
Validus Holdings, Ltd. (NYSE:VR): VR provides reinsurance coverage, insurance coverage, and insurance-linked securities management services worldwide. VR has seen price depreciation of about 3% over the last 52 weeks and currently trades at almost 8% below the 52-week high. The PEG of 0.55 and the almost on even Price/Book ratio of 0.99 keep VR interesting despite heavy insider sales and a small percentage of institutional sales. VR currently pays a 3.20% dividend based on current price and payout.
The consensus 1-year target price of 41.57 is a 10.7% increase on the previous close of 37.54. The Analyst Opinion Mean Recommendation is 2.3. VR has an Operating Margin of 30.75% and Net Profit Margin of 28.16%, while the return on equity is 12.37%.
Berkshire Hills Bancorp Inc. (NASDAQ:BHLB): BHLB, through its subsidiaries, provides retail and commercial banking, insurance, and wealth management services. BHLB has seen price depreciation of over 13% over the last 52 weeks and currently trades at almost 19% below the 52-week high. Like SLM, BHLB has a large amount of insider buying in the most recent reporting period, with only a less than 1% institutional Net Sales.
The upper range PEG of 1.40 is offset by the low Price/Book of 0.84. The weakness in general, in comparing BHLB to others on this list, is the dividend yield at current levels of 3.11%. The Analyst Opinion Mean Recommendation is 2.3, suggesting that analysts are moderately bullish on BHLB after its April 28th earnings release. BHLB has an Operating Margin of 25.66% and Net Profit Margin of 18.13%, while the Return On Equity is 6.12%. The consensus 1-year target price of 25.67 is n 11% increase on the previous close of 23.14.
I think that all the stocks included on this list deserve a thorough look in consideration for accumulation either now or in the near future. While the eight together do not necessarily represent a coherent investing thesis aside from their mutual inclusion on the same screen, I have created a model portfolio equally weighting the eight together at Reuters.com to keep track of their progress over the next few months.
I am personally considering GARS and SIMO the most for future addition to my portfolio. While GARS does not help in the diversification away from BDCs, SIMO does assist me with this goal. I like that SIMO has both sub-1 PEG and P/B ratios and a double-digit return on equity.
Being a newer issue, GARS still has some time to go to have a track record putting it up with other well-known and trusted BDCs, but there is no reason right now to doubt they can get there in time.
*Originally, Sallie Mae (NYSE:SLM) showed up on this screen, as their trailing dividend was still included post the Navient Corporation (NAVIV) spin-off. This dividend will be continued with NAVIV, and SLM will not be paying a dividend at this time. More information about this is available here. For this reason, I have removed them from this article, as the lack of a dividend yield whatsoever would be a non-pass for this screen.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.
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