Looking for companies with strong balance sheets that are taking advantage of currently depressed share prices, I ran a screen looking for companies trading below market valuations that had significantly reduced their share count in the past year. Ten companies caught my eye as potential value plays:
|Ticker||Short Name||EV/EBITDA||P/E||% Shares Repurchased|
|STX ||SEAGATE TECHNOLO||2.89||5.77||9.22%|
|WLP ||WELLPOINT INC||2.89||10.26||16.02%|
|ESI ||ITT EDUCATIONAL||3.19||6.55||15.38%|
|RSH ||RADIOSHACK CORP||3.46||8.59||15.52%|
|GME ||GAMESTOP CORP||3.80||8.23||8.12%|
|BBY ||BEST BUY CO INC||4.15||9.49||5.73%|
|ARO ||AEROPOSTALE INC||4.29||9.67||8.51%|
With an average EV/EBITDA of under 3.5x, a P/E of 8.7, and almost 10% of shares repurchased in the past year, the list certainly looks promising for value investors. Here is some more info on the companies that really interested me.
Seagate (STX) - I've mentioned Seagate several times before. Shares have enjoyed a huge run in the wake of some merger/acquisition activity in the sector, but the stock still looks incredibly cheap after the run up.
RadioShack (RSH), Best Buy (BBY) and Gamestop (GME) - The three companies have popped up on my list of potential buyout candidates, and I continue to believe RadioShack is materially undervalued. All three retailers enjoy strong ROE and ROIC, good balance sheets, and are buying back shares hand over first. But their stocks continue to languish due to short term earnings and revenue fears.
Career Education (CECO), ITT Educational Services (ESI) and Apollo Group (APOL) - While the companies' outlooks remain murky due to continued federal questioning of their business practices, the stocks have a strong history of rapid earnings growth. Combined with great cash flows and strong balance sheets, they should be able to weather any storms from the federal investigations and shares could represent a great value at today's prices.
Aeropostale (ARO) - Another company with a history of strong earnings growth and ROE, the company is buying back shares hand over fist. In addition, the company is beginning to open stores in Asian markets and trade at a discount to its peers, American Eagle ((AEO) - trading at 5.75x EV/EBITDA) and Abercrombie ((ANF) - trading at 8.33x EV / EBITDA). The company recently slightly raised its fourth quarter guidance and shares have actually traded down since the guidance raise, so any upside surprise to Thursday's earnings release could send the stock higher.
Additional disclosure: I may add to my RSH and ARO positions at any time.