4 Dividend Paying Bargain Buys With Substantial Growth Potential

 |  Includes: STLD, WHR, WOR, XEC
by: David Alton Clark

These four stocks have above industry average profit margins and above industry average return on equity. They also pay an annual dividend and have PEG ratios of less than 1. The PEG ratio is a broadly used indicator of a stock's prospective worth. It is preferred by numerous analysts over the price/earnings ratio because it also accounts for growth. Similar to the P/E ratio, a lower PEG means that the stock is more undervalued. Many financiers use 1 as the cut off point for PEG ratios. A PEG of 1 or less is believed to be favorable. These are bullish indicators regarding a stock's possible future performance.

Nonetheless, this is only the first step in finding winners for your portfolio. Now that we have cut the wheat from the chaff, let’s take a closer look to distinguish the driving factors behind these remarkable statistics and ensure the stories are intact.

Below are four tables with detailed statistics regarding company summaries, price performance, fundamentals and earnings and dividends followed by a brief analysis of each company's current events. Please use this as a starting point for your own due diligence.

Summary Statistics (Click on charts below to enlarge)

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Price Performance Statistics

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Fundamental Statistics

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Earnings and Dividend Statistics

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Company Reviews

Steel Dynamics, Inc. (NASDAQ:STLD) - Together with its subsidiaries, Steel Dynamics manufactures and sells steel products in the United States. It operates in three segments: Steel Operations, Metals Recycling and Ferrous Resources Operations, and Steel Fabrication Operations. SDLD’s strengths are a diversified product mix, technologically advanced assets, strong production capability, as well as raw materials platforms providing low cost structures and excellent profit potential and a unique employee culture.

Keith Busse, Chairman and CEO states:

We have been successful leveraging the steel-making knowledge and skills of our talented employees to help remake an industry that is vital to our American industrial economy. With STLD’s growth orientation and our proven record of achieving strong financial results relative to our peers, our focus is on continued profitable growth to enhance shareholder value. We believe the segment of the American steel industry in which we compete offers excellent opportunity for the future and we are in a very strong position to capitalize on it.

The company is trading above analyst’s estimates. STLD has a median price target of $21 by seven brokers and a high target of $26. The last up/downgrade activity was on the 14th of January, 2011: Dahlman Rose reiterated its buy rating on the company. The company is well positioned for growth. Please review the illustration for STLD’s summary and key statistics.

Whirlpool Corporation (NYSE:WHR) - Engages in the manufacture and marketing of home appliances worldwide. Its principal products include laundry appliances, refrigerators, cooking appliances, dishwashers, mixers, and other small household appliances. The company was founded in 1906 and is based in Benton Harbor, Michigan.

Whirlpool was named one of the Most Respected U.S. companies by Forbes magazine and the Reputation Institute. This is the fourth consecutive year Whirlpool has been included in the Most Respected Companies list. Jeff M. Fettig, chairman and CEO of the Whirlpool Corporation said:

We are proud to be recognized by Forbes and Reputation Institute as one of the most respected companies in the United States. This is an honor for all of the Whirlpool employees who have contributed to our company's success during the last 100 years. Providing products and trusted brands that meet specific consumer needs, doing business with integrity and helping improve the communities where we operate has been our hallmark for 100 years. These principles will guide us into our next century of opportunity as we build on our strong heritage and values to generate growth and create long-term value for our shareholders, our employees and the families who use our products each and every day, everywhere around the world.

Whirlpool recently announced its quarterly dividend of 50 cents per share, an increase of about 16% over its prior dividend in February of 43 cents. The company is trading significantly below analyst’s estimates. WHR has a median price target of $97 by four brokers and a high target of $105. The last up/downgrade activity was on the 8th of March, 2011: KeyBanc Capital Markets initiated coverage on the company with a buy rating. I am considering picking up some shares prior to the earning announcement on Wednesday. Please review the illustration for WHR’s summary and key statistics.

Worthington Industries, Inc. (NYSE:WOR) - Operates as a diversified metal processing company focusing on steel processing and manufactured metal products in the United States, Canada, and Europe. Worthington Industries was founded in 1955 and is headquartered in Columbus, Ohio.

WOR recently reported net sales of $569.4 million and net earnings of $26.3 million, or $0.35 per share, for its fiscal 2011 third quarter ended February 28, 2011. In last year’s third quarter, the company reported net sales of $451.1 million and a net loss of $17.7 million, or $0.22 per share, which included $0.28 per share in impairment and restructuring charges.

John McConnell, Chairman and CEO, said:

We are very pleased with the excellent results this quarter and continue to see positive signs of recovery in many of our markets. Our businesses have continued to perform well as we have remained focused on enhancing our earnings potential, improving our operating efficiencies, and investing in businesses that will help us achieve our goals. Net sales for the third quarter ended February 28, 2011, were $569.4 million, up 26% from the comparable quarter last year, when net sales were $451.1 million. An overall increase in volumes had a $79.1 million positive impact on net sales as both Steel Processing and Pressure Cylinders segments showed improvements.

Gross margin for the current quarter was $88.3 million, or 16% of net sales, compared to $57.7 million, or 13% of net sales, for the prior year quarter. The $30.6 million increase in gross margin is primarily due to increased volumes in both Steel Processing and Pressure Cylinders. Inventory holding gains helped margins in both the current quarter and prior year quarter. SG&A expenses were $2.3 million higher than the prior year quarter, primarily due to increased profit sharing, bonus and wage expenses offset by lower legal and bad debt expense. The prior year quarter included $4.9 million in litigation related expenses. The company is trading above analyst’s estimates. WOR has a median price target of $24 by five brokers and a high target of $27. The last up/downgrade activity was on the 17th of August, 2010: Longbow upgraded the company from Neutral to Buy. Positive signs of a market recovery bode well for WOR. Please review the illustration for WOR’s summary and key statistics.

Cimarex Energy Co. (NYSE:XEC) - Operates as an oil and gas exploration and production company. The company has operations primarily in the Mid-Continent region, which consists of Oklahoma, the Texas Panhandle, and southwest Kansas; the Permian Basin encompassing west Texas and southeast New Mexico; Gulf Coast areas of southeast Texas and offshore Louisiana; and Wyoming. As of December 31, 2009, it had proved oil and gas reserves of 1.5 trillion cubic feet equivalent consisting of 1.2 trillion cubic feet of gas, and 58.0 million barrels of oil and natural gas liquids. The company was founded in 2002 and is headquartered in Denver, Colorado. Cimarex Energy operates independently of Helmerich & Payne Inc. (NYSE:HP) as of September 30, 2002.

Cimarex’s strategy is to grow by keeping a mix of opportunities to include gas/oil low medium & higher risk projects and to seek geologic and geographic diversity. By making rate of return-based decisions, XEC potentially can underpin returns with low/moderate risk/reward projects and enhance returns with selected higher geologic risk/reward opportunities while maintaining a strong financial position.

Cimarex Energy recently announced its plans to report first-quarter 2011 financial results and provide an operations update before the market opens on Friday, May 6, 2011. The company is trading significantly below analyst’s estimates. XEC has a median price target of $125 by 17 brokers and a high target of $146. The last up/downgrade activity was on the 6th of April, 2011: Barclays Capital reiterated its rating of Overweight on the company. Please review the illustration for XEC’s summary and key statistics.

These companies are all well positioned to benefit from each of their respective sector's burgeoning demands spurred by numerous positive catalysts. I will continue monitoring these stocks further to determine the precise timing to create a position. Scaling in to the position over a period of time will reduce risk.

Information was gathered from CNBC, Yahoo Finance and respective company websites.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in STLD, WHR, WOR, XEC over the next 72 hours.