I love to invest my time in exploring companies with limited Wall Street coverage. It's amazing how inefficiently priced many of these stocks can be. Every now and then, I uncover a real gem. With that in mind, I ran the following screen with the goal of identifying companies with high growth, low valuation, high return on capital and good stock performance. Here are the parameters:
- Market Cap > $100mm
- 1yr Sales growth > 20%
- 1yr EPS growth > 20%
- Trailing PE < 16
- Net Debt to Capital < 50%
- ROIC > 10%
- 1yr Return Vs. S&P 500 > 0
- Analysts Covering < 3
Here are the potential gems, sorted on trailing PE (click to enlarge images):
I don't know most of these companies well, but I have heard of most and am very familiar with two, Preformed Line Products (PLPC) and Dorman Products (DORM). I will share some brief initial thoughts, with more substantive comments on the two I know.
DDi (DDIC) makes printed circuit boards (PCBs). The company did a big acquisition last year and doesn't strike me as having sustainable growth that stands out.
Seaboard (SEB) is a strange company, but I like it. They are shipping and pigs and a few other things. Every time I look at it, it looks cheap and just keeps going up. Here's a write-up from last year by Tom Samuels if you want to learn more.
Rudolph Technologies (RTEC) helps thin-film and semiconductor makers identify defects. The stock looks cheap, but the backlog at year-end was down from a year ago.
Great Northern Iron (GNI) is structured as a Trust and derives its income from royalites related to the Mesabi Iron Range in Minnesota. The Trust unwinds in 2015.
Chase (CCF) makes tapes, laminates, sealants and coatings. They recently divested their EMS business and made two acquisitions. Their backlog is up 140% from a year ago. A father-son team (the Chases) run the company, and there is 17% inside-ownership.
Spectrum Control (SPEC) makes electronic components used in military/defense (60%), communications equipment (17%) and other end markets. I'll make a prediction that this company will be acquired by one of its larger competitors, which include Amphenol (APH), Tyco Electronics (TEL) or Carlisle (CSL).
Emagin (EMAN) makes organic light-emitting diodes (OLEDs), targeting military and consumer applications with their microdisplays. Sounds really cool - no clue why it trades so inexpensively or why absolutely no one covers it.
LaBarge (LB) has 23% inside ownership. The company makes high-performance electronic, electromechanical and interconnect systems. End markets include defense (42%), industrial (23%), natural resources (20%) and medical (11%).
Preformed Line Products (PLPC) is a stock we picked up in the Top 20 Model Portfolio late last year. It has massive inside ownership and more than 50% of its sales derived from outside of the United States. The company has done some nice acquisitions recently and has high exposure to emerging markets. PLPC supplies formed wire and hardware used in electricity transmission and distribution, cable and communications markets. I believe that the company can earn about $6.50 per share in 2012 and command a 15 PE, leading to a price target of 101.50 a year from now. Backlog growth is very strong.
Ebix (EBIX) sells software and e-commerce solutions to the insurance industry. More than 70% of sales come from on-demand insurance Exchanges. The company has been very acquisitive. I don't know this one at all, but it was hammered last week on a negative report from Copperfield Research.
Dorman Products (DORM) has been benefiting from several factors that have enabled this supplier of OEM replacement auto parts to chains like O'Reilly (ORLY), Advance Auto Parts (AAP) and Autozone (AZO). Used cars on the road longer, more attention to cost, and the reduction in dealer repair shops have sent this stock flying. I first highlighted this one a couple of years ago when it was trading near 8. On Friday, I advised one of my clients to sell the stock, as it is not as attractive as other names (though I expect it could rise to 47 over the next year).
So, obviously I like PLPC, but CCF, SPEC, EMAN and LB look interesting too. Anyone out there following any of these smaller companies?
Disclosure: My Top 20 Model Portfolio is long PLPC