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We can use the Screener.co stock screener to find companies that are trading at deep-value valuations that have both a recent track record of growth and consensus revenue estimates for the current year that are higher than last year's revenue numbers. Let's use the following criteria after configuring the tool to limit the results to companies trading on US markets:

Field

op

Criteria

Exchange Traded On

!=

"Over The Counter"

Sector

!=

"Financial"

Country Located In

!=

"China"

Current EV/EBITDA

<=

5

Revenue Change-TTM over TTM

>

0

Revenue Change-year over year

>

0

Total Debt(I)

<

2 * EBITDA(A)

Annual consensus sales estimate

>

Total Revenue(A)


For the purposes of this screen, we are eliminating companies based in China and financial sector companies. We are also requiring that companies' total debt be less than twice their annual EBITDA as a conservative measure of debt serviceability. Our valuation cut-off requires an EV/EBITDA ratio of less than 5, a relatively low valuation multiple. The tool is fully customizable and you can easily create a modified version of this screen, with your own parameters.

This screen produces 67 results as of 4/3/2011. The results include the 11 companies listed below:

Symbol

Company Name

WHR

Whirlpool Corporation

GPS

The Gap Inc.

AZN

AstraZeneca plc (ADR)

ARO

Aeropostale, Inc.

AAN

Aaron's, Inc.

RIMM

Research In Motion Limited (USA)

PCCC

PC Connection, Inc.

INTC

Intel Corporation

DELL

Dell Inc.

BGFV

Big 5 Sporting Goods Corporation

AHCI

Allied Healthcare International Inc.

Whirlpool (NYSE:WHR) is a home appliance manufacturer that appears to be trading at a very attractive EV/EBITDA ratio of just under 5.0x. However, there is a very informative recent Seeking Alpha article, which outlines the impact of an unfunded pension liability on the company's effective valuation. That article is a great example of why it is always important to fully examine a company's filings before makng an investment decision. These financial screens are a great way to limit the scope of inquiry to only companies that meet certain criteria but there is no substitute for fully digesting the company filings. In this case, it makes WHR and its valuation look a lot less attractive.

The Gap (NYSE:GPS) is a teen clothing retailer that is sporting a dividend yield over 2% and an EV/EBITDA ratio of 4.4x. The company has a very healthy balance sheet, with over $4B of net tangible assets and almost $1B of net current assets (though $1.6B of its current assets are in inventory). The company's revenues have held steady between $14B and $15B for the last three fiscal years and the company is projected to hit $15B of sales this year. Relative to Aeropostale (NYSE:ARO), discussed later, The Gap's valuation metrics look less attractive, so this one is not making the watch list.

AstraZeneca (NYSE:AZN) is a pharmaceutical company that is trading at an EV/EBITDA ratio of 4.6x. It grew revenue each year from 2007 to 2010 and is projected to grow in 2011 as well. Its most recent YoY revenue growth rate was 1.4% and the company had $33.3B of revenue in 2010. The company is projected to pay a ~$2.71 dividend in 2011; at $46.60 a share, that is an impressive 5.8% yield. Even though many of the pharma companies, and healthcare companies more broadly, are trading at low multiples in response to the uncertainty in their market, AZN still looks worthy of further research.

Aeropostale (ARO) is another teen retailer that is trading at an attractive valuation. With an EV/EBITDA ratio of 3.9x, it is trading at an even lower multiple than The Gap. Notably, the company was profitable even in the fiscal years ending in January 2009 and 2010, despite the recession, and posted an impressive YoY revenue growth rate of 7.6% most recently. With an even faster growth rate and lower valuation ratio than The Gap, this looks like one to watch.

Aaron's (NYSE:AAN) is a rent-to own store chain with an EV/EBITDA ratio of just 2.75x and a very healthy balance sheet ($773M of net tangible assets and net current assets of over $400M, though much of it is in inventory). According to a press release and AP report from March 29th, Aaron's is planning to create over 1,000 additional jobs in 2011. It has grown revenue for the last three years and reported a YoY revenue growth rate of 7% most recently. As a result, it seems to be positioning itself for further growth. There is, however, an unusually high amount of depreciation (since the company is depreciating the merchandise it leases to consumers as part of its business) that perhaps makes EV/EBITDA an inappropriate valuation metric for this type of business. The company's P/E ratio is considerably higher so I am passing on Aaron's for now.

Research in Motion (RIMM) is the manufacturer of the BlackBerry smartphones. While iOS and Android devices have significantly eroded RIMM's market share, smartphones remains a very high growth marker. As a result, it is surprising to see RIMM trading at an EV/EBITDA ratio of 4.9 despite growing revenue 33.3% YoY. Unfortunately for RIMM, iOS and Android devices are slowly making their way into the enterprise segment that RIMM has dominated for years in the US. If you believe that RIMM will be able to carve out a place for itself despite the iOS and Android double-threat, then this looks like a very attractively valued company. Analysts are still projecting strong growth for the company, so this is making my watch list.

It is too late for PC Connection (NASDAQ:PCCC) to make my watch list as I purchased shares in the company at ~5% below the current price and continue to hold my position. I still think the company is interesting; it is trading at an EV/EBITDA ratio of 4.8x after growing revenue 26% YoY. It has a very strong balance sheet with over $200M of net tangible assets and net current assets of over $190M relative to a market cap of $242M. While the company's cash flow is not as strong as its earnings (it actually reported negative cash flow in 2010 despite having $22.9M of net income), I believe the accumulation of receivables, that was the primary cause of the difference, is to be expected from a growing distribution business (that requires an increase in working capital to grow).

Intel (NASDAQ:INTC) is a semiconductor company that has been coming up on a lot of my value screens given its impressive 24% YoY revenue growth and 4.4x EV/EBITDA ratio. It has a very strong balance sheet in addition to being an iconic brand, and it is likely not going away anytime soon. As a bonus, it is currently yielding 3.6%. Even in 2008 and 2009, during the recession, the company had net income of $5.3B and $4.4B, respectively. Its operating cash flow for 2008, 2009, and 2010 is even more impressive at $10.9B, $11.2B, and $16.7B, respectively. It seems investors are scared about its poor positioning in the tablet and mobile markets. I am less convinced that Intel will not play a significant role in both markets over time given its position as the world's leading microprocessor company. I may place an order for Intel within the 72 hour window.

Dell (NASDAQ:DELL) is a PC and server manufacturer that is trading at an EV/EBITDA ratio of 4.3x and posted 16.2% YoY revenue growth. It is expected to generate $64.8B of revenue in the current year relative to $61.5B last year and is valued at only ~1/3 of its TTM sales, very low by technology industry standards. Given its attractive valuation, I think the company is worth watching, but I am less bullish overall on Dell than Intel. Both have similar EV/EBITDA ratios and serve similar markets (Dell makes PCs and servers and uses chips from Intel in most of its machines) but I believe Intel's competitive position, with only one rival of scale AMD, is stronger than Dell's. The PC and server manufacturing market is very competitive. Nevertheless, the attractive valuation warrants adding the company to my watch list.

Big 5 Sporting Goods (NASDAQ:BGFV) is a retail sporting goods company with an EV/EBITDA ratio of 4.9x and a 2.5% dividend yield (after its recent dividend hike). The company eked out ever-so-slight revenue growth of 0.14% and actually saw net income decline YoY. Given the company's relatively low historical growth rate, this looks more like a traditional value play rather than a value and growth company. As a result, I do not think it makes the cut relative to the other companies on this list.

Allied Healthcare International (NASDAQ:AHCI) is a healthcare staffing company that operates primarily in the UK (despite having its headquarters in the US). Despite posting an 8.5% YoY revenue increase and trading at a 4.7x EV/EBITDA ratio, this also looks like more of a traditional value play than a value and growth company. Looking back at historical revenue, its 2010 revenue represented a decline from 2008 levels. One recent Seeking Alpha article is bullish on the company as a traditional value play but it seems out of place on this article's list.

In the future, we may tweak this screen so that it looks for YoY and current year growth greater than or equal to a number higher than 0. That would have eliminated BGFV. In addition, we may look back further than one year to ensure that growth has been positive for two or more years, eliminating AHCI. We ran a consistent growth screen for another Seeking Alpha article. Creating a hybrid of these two screens also might be informative.



Disclosure: I am long PCCC. I also may initiate a long position in INTC over the next 72 hours.

Source: 11 Value Plays That Have Growth Potential