To build our screen, we used the following criteria and the Jive Data stock screener.
|Current Market Capitalization||> $50M|
|Current EV/Adj. EBITDA||<= 7x|
|Free Cash Flow Yield before Working Capital||>= 10%|
|Net Adj. Leverage Ratio (Net Debt/Adj. EBITDA)||<= 5x|
|Adj. EBITDA Margin||>= 10%|
|Sales||> 1 Year Ago|
While our criteria aren't overly narrow, we came up with 7 total stocks, 2 of which we discuss below. As with all stock screens, the results are meant as a starter to deeper research before taking a position, long or short, in any of the companies that pass.
Universal Corporation (NYSE:UVV) is the middle-man between the tobacco companies and the tobacco farmers. UVV provides procuring, financing, processing, packing, storing, and shipping of leaf tobacco to the manufacturers of consumer tobacco, including cigarettes, cigars, smokeless, and other forms. In their most recent Fiscal Year, Universal handled approximately 30% of the flue-cured and burley tobacco produced in North America. While their competition varies on a country-by-country basis, their largest competitor is Alliance One International (NYSE:AOI) and competes in most of the countries where UVV has a presence and has a similar worldwide market share. However, UVV's balance sheet is much more conservative than that of AOI.
Investing in UVV comes with risk, with the obvious being efforts to curb the use of tobacco, including regulations and anti-smoking campaigns worldwide. Also, e-cigarettes have taken the industry by storm; eating into the market share of traditional tobacco products. However, UVV recently formed a joint venture to supply liquid nicotine to the e-cigarette industry. The recent insider selling, however, makes us want to wait until insiders become more positive on the company.
Source: Jive Data
Take-Two Interactive Software (NASDAQ:TTWO) is a New York based developer of games for Playstation, Xbox, Wii, PSP, and Nintendo DS. TTWO develops and publishes their games through two labels: Rockstar Games and 2K. Their games include Grand Theft Auto, BioShock, Mafia, NBA 2K, WWE 2K, among others. In 2013, the installed base of console gaming systems (including handhelds) grew 7% from 2012 to 579 million units, according to International Development Group (IDG). IDG expects this number to grow to 723 million units in 2018.
The gaming industry is notoriously hit-driven. Their 2014 Fiscal Year Revenue was up 93% year-over-year to $2.4 Billion, driven primarily by the release of Grand Theft Auto V in September, 2013. We do not expect this rate of growth to continue. While the numbers are difficult to predict, the company sits on $935 million of cash and another $193 million of restricted cash. They have $454 million of debt. This strong net cash position is after the company repurchased $276 million of stock in their latest Fiscal Year, including $203.5 Million to repurchase 12 million shares from the Icahn Group at $16.93 in November, 2013.
While the company has eagerly spent shareholder money to buy shares from Icahn, we are put off by the insider transactions of the CEO, CFO and Directors, even though they occurred at a slightly higher price. As with Universal Corporation, we would hold off on diving into Take-Two Interactive until the insiders become more bullish on their stock.
Source: Jive Data
We have no positions in the above-mentioned companies.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.