The following is a follow-up to a list we published a few days ago (20 Undervalued Stocks Backed by Strong Management Teams). We started with the universe of 20 stocks mentioned in that article, and collected data on institutional flows to identify the undervalued stocks that have seen institutional buying over the last three months.
Only two stocks out of the original list of 20 made the cut. Both stocks mentioned below have the following characteristics:
- They are undervalued, with Price to Earnings Growth (PEG) ratios below 1.
- Their management teams have outperformed their competitors over the last five years, when comparing the Return on Assets (ROA), Return on Invested Capital (ROI) and Return on Equity (ROE) ratios.
- They have both seen increased institutional buying over the last three months.
Will these management teams continue to outperform? What do you think? This list might offer an interesting starting point to a value-oriented investor looking for quality companies. Full details below.
Management data, industry comps, and institutional transactions sourced from Reuters; PEG ratios, short float and performance data sourced from Finviz.
Interactive Chart: Click to compare the performance of FSLR and HRB.
The list has been sorted by the change in institutional ownership. Data was sourced on the afternoon of January 27.
1. First Solar, Inc. (FSLR):
Semiconductor Industry. Market cap of $13.02B. PEG ratio at 0.91.
Management Performance: 5-year average ROA at 19.52% vs. industry average at 3.85%. 5-year average ROI at 22.83% vs. industry average at 5.43%. 5-year average ROE at 25.72% vs. industry average at 8.98%.
Institutional Transactions: Institutional investors currently own 63,939,560 shares vs. 62,728,910 shares held three months ago (+1.93% change).
Other Sentiment Data: Short float at 29.81%, which implies a short ratio of 9.34 days. The stock has gained 33.05% over the last year.
Recent Developments: Vietnamese authorities approved the company’s investment of $300M in Vietnam plant (Jan. 2011). The company announced that it acquired RayTracker Inc (Jan 2011).
2. H&R Block, Inc. (HRB):
Personal Services Industry. Market cap of $4.0B. PEG ratio at 0.86.
Management Performance: 5-year average ROA at 7.07% vs. industry average at 6.94%. 5-year average ROI at 15.11% vs. industry average at 9.49%. 5-year average ROE at 27.56% vs. industry average at 13.77%.
Institutional Transactions: Institutional investors currently own 279,691,276 shares vs. 277,184,144 shares held three months ago (+0.90% change).
Other Sentiment Data: Short float at 10.7%, which implies a short ratio of 5.15 days. The stock has lost -38.06% over the last year.
Recent Developments: Announced agreement to acquire TaxACT digital tax preparation business (Oct. 2010).
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.