11 Attractively Valued Companies to Consider

by: Lenny Grover

Using our stock screener, we can search for companies that are traded on U.S. exchanges, are not headquartered in China, have low valuation metrics, serviceable debt loads, and have positive growth TTM/TTM. The full set of conditions used are:

Exchange Country
Exchange Traded On
"Over The Counter"

Revenue Change-TTM over TTM

Country Located In
Total Debt(NYSE:I)
Price to Cash Flow per share-trailing 12 month

As of 3-26-2011, this produces 110 results. Looking over the list, however, reveals quite a number of companies that can be excluded. Those that have negative EV/EBITDA because they have negative EBITDA, those whose headquarters are not in China but a substantial portion of their operations are, companies in.

Like many value screens, this screen returns a number of companies in industries in long-term decline like terrestrial radio, book and packaged game retailers, etc. After having been burned by trying to time how rapidly declining markets are, in fact, declining, I tend to avoid these types of companies.

There are a number of interesting companies in the list, however:

Company Name
Power-One, Inc.
Sony Corporation (ADR)
Skechers USA, Inc.
Lexmark International, Inc.
Computer Sciences Corporation
Energy Services of America Corp.
Advanced Battery Technologies, Inc.
Tyson Foods, Inc.
Iridium Communications Inc.
AMCON Distributing Co.
Cal-Maine Foods, Inc.

Power-One (NASDAQ:PWER) is a power inverter and converter company that was covered in detail here on March 14th. Currently, the company is trading at a 2.6x EV/EBITDA ratio and a 5.6x P/CF (NYSE:TTM) ratio. The article argues that the company's track record of growth is compelling (143% revenue growth TTM/TTM!), and I agree that the Industry growth expectations are substantial. As such, the recent sell-off in response to lowered Q1 guidance seems excessive. PWER is volatile, to be sure, but the valuation metrics and market are interesting.

Even given the recent tragedy in Japan, I was very surprised to see Sony Corporation (NYSE:SNE) on this list. It is trading at a 3.5x EV/EBITDA ratio and a 4.3x P/CF ratio. The company has a very healthy balance sheet with a substantial net-tangible asset value. It seems like it can survive the short-term disruptions to its supply chain caused by the natural disaster and subsequent power shortages. SNE was trading at over $36/share before the disaster and I think that the 15+% hit to its market cap is excessive. I will definitely be tracking this one.

Sketchers USA (NYSE:SKX) is an apparel company that has derived much of its recent (impressive) revenue growth from the sale of Shape-Ups training shoes. With an EV/EBITDA ratio of 3.5x and a P/CF ratio of 5.6x, it appears to be attractively valued given its ~40% TTM/TTM revenue growth. But, wait! Is this a volatile footwear fad like Crocs (NASDAQ:CROX)? If you think that this trend has legs, then run to your broker and buy some Sketchers. Otherwise, kick them to the curb. (Sorry, I could not resist the puns...)

Lexmark (NYSE:LXK) is an iconic printer company with a 2.9B market cap that is trading at an EV/EBITDA ratio of 3.6x and a P/CF ratio of 5.4x. Lexmark grew revenue over 8% TTM/TTM and seems to be recovering nicely from the recession. While a case could be made that the proliferation of tablets in the enterprise may take a toll on print volume, I think that trend is only in its earliest stages. Even with that discount priced in, LXK looks attractive and is probably worth researching further.

Computer Sciences Corporation (NYSE:CSC) is an IT outsourcing company that serves government and enterprise clients. Its fortunes rise and fall with corporate and governement IT spending. It is trading at a 3.9x EV/EBITDA ratio and 4.0x P/CF ratio. It has $2.8B of total debt but still has a healthy balance sheet with well over a billion dollar net tangible asset value. I am worried about how federal, state, and municipal government IT budgets will be affected by the government budget crises. CSC's stock is trading at a discount at least in part because I am not the only one with these worries. I am holding off on this one.

Energy Services of America (ESA) is a services firm whose clients are oil and gas companies. Even though I remove oil and gas companies from my screens, given the impact of commodity prices on their businesses, it is not uncommon for a company like this to slip through. That is why it is important to look beyond a company's industry classification and know who the customers of each target company are when evaluating its prospects.

Advanced Battery Technologies (OTCPK:ABAT) is a manufacturer of batteries for use in consumer electronics devices and electric vehicles. It is trading at a 4.0x EV/EBITDA ratio and a 6.9x P/CF ratio. Most impressively, it grew revenue 53% TTM/TTM. It has over $100M of net current assets and $188M of net tangible asset value and is trading at a market capitalization of $252M. I will definitely research this company further.

Tyson Foods (NYSE:TSN) is a meat production company that is trading at an EV/EBITDA ratio of 4.0x and a P/CF ratio of 5.3x. The company grew revenue over 9% TTM/TTM. While the company has $2.5B of debt, it meets our conservative screen for debt serviceability. It is also paying a dividend and yielding ~0.8%. This one is also making its way to the watchlist.

Iridium Communications (NASDAQ:IRDM) has an impressive track record of growth; from essentially no revenue in 2008 to $88M of revenue last quarter. It is trading at a EV/EBITDA ratio of only 5.4x. You may be wondering how on Earth (or, actually, above the Earth) can a company with a functional global network of satellites, that had no revenue two years ago, have only $22M of debt on its balance sheet. If you answered "assets purchased out of epic bankruptcy", you would be correct. The company will need to spend a considerable amount to maintain the continuity of its network as old satellites are retired from service, and they have placed one of SpaceX's largest orders. I am really rooting for the company but the risk profile here is too high for me. This could be a real winner, though.

AMCON Distributing (NYSEMKT:DIT)
is a $1B revenue consumer products distributor with a $45M market cap and a 1% dividend yield. The company has an EV/EBITDA ratio of 4.1x and a P/CF ratio of 4.3x. While its margins are very low, AMCON weathered the last economic cycle well; it was profitable in 2008 and 2009. The stock is very thinly traded so expect volatility, but this one makes it to my watchlist.

Cal-Maine Foods (NASDAQ:CALM) distributes chicken eggs. It has an EV/EBITDA ratio of 4.2x and a P/CF ratio of 6.4x. The company's gross margins contracted considerably between 2008 and 2010 while its opex has increased. That's a real turn-off for me.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.