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Here we report 14 companies with attractive prospects, having been more profitable than their industry peers over the last year. These companies beat their industry averages on trailing twelve months ((NYSE:TTM)) gross, operating, and pretax margins. These companies also appear undervalued relative to earnings growth (with PEG < 1) and relative to free cash flow (with P/FCF < 15).

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the top six stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.

Do you think these stocks have fully priced in their profitability? Use this list as a starting-off point for your own analysis.

List sorted by difference between company and industry TTM gross margin.

1. Tessera Technologies Inc. (NASDAQ:TSRA): Semiconductor Equipment & Materials Industry. Market cap of $878.75M. PEG at 0.59. P/FCF at 12.51. Gross margin (TTM) at 98.74% vs. industry avg. of 58.85%. Operating margin (TTM) at 34.47% vs. industry avg. of 25.13%. Pretax margin (TTM) at 33.53% vs. industry avg. of 24.60%. The stock has lost 1.09% over the last year.




2. USANA Health Sciences Inc. (NYSE:USNA):
Drug Related Products Industry. Market cap of $463.05M. PEG at 0.63. P/FCF at 7.21. Gross margin (TTM) at 81.90% vs. industry avg. of 68.95%. Operating margin (TTM) at 13.46% vs. industry avg. of 11.74%. Pretax margin (TTM) at 13.16% vs. industry avg. of 7.40%. The stock is a short squeeze candidate, with a short float at 15.21% (equivalent to 10.48 days of average volume). The stock has performed poorly over the last month, losing 22.49%.



3. Capella Education Co. (NASDAQ:CPLA): Education & Training Services Industry. Market cap of $765.11M. PEG at 0.73. P/FCF at 13.33. Gross margin (TTM) at 65.84% vs. industry avg. of 52.91%. Operating margin (TTM) at 22.03% vs. industry avg. of 19.79%. Pretax margin (TTM) at 22.08% vs. industry avg. of 16.06%. The stock is a short squeeze candidate, with a short float at 11.46% (equivalent to 8.46 days of average volume). The stock has lost 43.38% over the last year.



4. VimpelCom Ltd. (NASDAQ:VIP): Wireless Communications Industry. Market cap of $17.96B. PEG at 0.65. P/FCF at 13.46. Gross margin (TTM) at 71.70% vs. industry avg. of 59.23%. Operating margin (TTM) at 27.13% vs. industry avg. of 18.34%. Pretax margin (TTM) at 22.13% vs. industry avg. of 11.22%. The stock has lost 9.16% over the last year.

5. SanDisk Corp. (NASDAQ:SNDK): Semiconductor Industry. Market cap of $10.97B. PEG at 0.69. P/FCF at 7.87. Gross margin (TTM) at 49.63% vs. industry avg. of 40.47%. Operating margin (TTM) at 30.58% vs. industry avg. of 20.63%. Pretax margin (TTM) at 29.12% vs. industry avg. of 20.24%. The stock has lost 1.24% over the last year.

6. Torchmark Corp. (NYSE:TMK): Life Insurance Industry. Market cap of $5.02B. PEG at 0.98. P/FCF at 5.19. Gross margin (TTM) at 24.99% vs. industry avg. of 17.16%. Operating margin (TTM) at 24.99% vs. industry avg. of 13.69%. Pretax margin (TTM) at 22.68% vs. industry avg. of 11.99%. The stock has gained 29.7% over the last year.

7. Artio Global Investors Inc. (NYSE:ART): Asset Management Industry. Market cap of $829.95M. PEG at 0.79. P/FCF at 11.36. Gross margin (TTM) at 51.13% vs. industry avg. of 46.02%. Operating margin (TTM) at 50.27% vs. industry avg. of 34.95%. Pretax margin (TTM) at 50.24% vs. industry avg. of 31.79%. The stock is a short squeeze candidate, with a short float at 8.12% (equivalent to 11.2 days of average volume). The stock has performed poorly over the last month, losing 15.37%.

8. Arch Capital Group Ltd. (NASDAQ:ACGL): Property & Casualty Insurance Industry. Market cap of $4.46B. PEG at 0.89. P/FCF at 5.59. Gross margin (TTM) at 21.46% vs. industry avg. of 17.16%. Operating margin (TTM) at 21.46% vs. industry avg. of 13.69%. Pretax margin (TTM) at 20.95% vs. industry avg. of 11.99%. The stock has gained 37.9% over the last year.

9. American Financial Group Inc. (NYSE:AFG): Property & Casualty Insurance Industry. Market cap of $3.66B. PEG at 0.94. P/FCF at 4.95. Gross margin (TTM) at 21.20% vs. industry avg. of 17.16%. Operating margin (TTM) at 16.36% vs. industry avg. of 13.69%. Pretax margin (TTM) at 14.08% vs. industry avg. of 11.99%. The stock has gained 29.4% over the last year.

10. FBL Financial Group Inc. (NYSE:FFG): Life Insurance Industry. Market cap of $963.78M. PEG at 0.74. P/FCF at 2.04. Gross margin (TTM) at 20.54% vs. industry avg. of 17.16%. Op)erating margin (TTM) at 20.17% vs. industry avg. of 13.69%. Pretax margin (TTM) at 18.51% vs. industry avg. of 11.99%. This is a risky stock that is significantly more volatile than the overall market (beta = 2.47). The stock has gained 27.93% over the last year.

11. Sauer-Danfoss Inc. (NYSE:SHS): Diversified Machinery Industry. Market cap of $2.53B. PEG at 0.69. P/FCF at 9.65. Gross margin (TTM) at 36.89% vs. industry avg. of 33.81%. Operating margin (TTM) at 18.03% vs. industry avg. of 12.61%. Pretax margin (TTM) at 15.00% vs. industry avg. of 10.76%. This is a risky stock that is significantly more volatile than the overall market (beta = 2.07). The stock has performed poorly over the last month, losing 12.39%.

12. Sotheby's (NYSE:BID): Specialty Retail, Other Industry. Market cap of $2.86B. PEG at 0.95. P/FCF at 14.31. Gross margin (TTM) at 55.73% vs. industry avg. of 52.91%. Operating margin (TTM) at 34.91% vs. industry avg. of 19.79%. Pretax margin (TTM) at 29.39% vs. industry avg. of 16.06%. This is a risky stock that is significantly more volatile than the overall market (beta = 2.3). The stock has performed poorly over the last month, losing 14.98%.

13. Capital One Financial Corp. (NYSE:COF): Credit Services Industry. Market cap of $24.81B. PEG at 0.74. P/FCF at 3.28. Gross margin (TTM) at 32.86% vs. industry avg. of 30.29%. Operating margin (TTM) at 32.86% vs. industry avg. of 26.61%. Pretax margin (TTM) at 25.45% vs. industry avg. of 22.32%. The stock has gained 31.42% over the last year.

14. Vishay Intertechnology Inc. (NYSE:VSH): Semiconductor Industry. Market cap of $2.61B. PEG at 0.63. P/FCF at 6.09. Gross margin (TTM) at 37.44% vs. industry avg. of 36.25%. Operating margin (TTM) at 17.31% vs. industry avg. of 9.20%. Pretax margin (TTM) at 16.56% vs. industry avg. of 8.94%. This is a risky stock that is significantly more volatile than the overall market (beta = 2.18). The stock is a short squeeze candidate, with a short float at 11.08% (equivalent to 6.48 days of average volume).

*Profitability data sourced from Fidelity, all other data sourced from Finviz. Data collected on the afternoon of Tuesday May 31st.

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

Source: Value Ideas: 14 Highly Profitable and Undervalued Stocks