One of the things I like to do is to research companies with absolutely no Wall Street coverage. If I do my research correctly, I can often find very solid companies with reasonable valuations. With that in mind, I ran a screen to find some high growth companies that are reasonably priced, hoping to find some potentially undiscovered gems to consider. Here are the parameters of the screen:
- Russell 2000 member
- Sales Growth > 15% over the past year
- EPS Growth > 40% over the past year
- Trailing PE < 20
Here are the results:
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I sorted the list by YTD price returns, which, on average, are lin line with the market. The majority of the list comes from the Industrial sector, but there are representatives of Technology, Financials and Consumer Discretionary as well. I have to admit that I have never even heard of a few of these companies.
- Sauer-Danfoss (SHS) is soaring. This is one with which I am totally unfamiliar, but this Iowa-based company, which is majority owned by a Norwegian company, is involved in mobile hydraulics, allowing for the distribution and control of power in mobile equipment (agriculture, construction, road building, lawn, material handling and specialty vehicle markets). Danfoss A/S tried to buy them in late 2009 for 10.10 and ultimately raised its bid to 14. Backlog grew 63% in 2010. One of the reasons this one hasn't hit my screens historically is that it does carry substantial debt - $214mm on equity of $388mm. Still, it sure looks cheap.
- Preformed Line Products (PLPC) is one that I found last year and added to the Top 20 Model Portfolio in the 40s. I continue to like it at the current price and expect that it will exceed 100 over the next year. The company is rather mundane - it provides wire and related products, including enclosures, that are used in energy infrastructure and other markets. The company has high inside ownership, with management acting like smart shareholders. Two recent acquisitions have helped boost international sales, especially in the Asia Pacific and Australia. I estimate that the company can earn over $6 in 2012 with modest sales growth.
- Seaboard (SEB) has to be one of the most expensive stocks as measured by price, but it is cheap on all other metrics. Insiders own the vast majority of shares. This one has shown up on my screens for years. The company has a lot of different businesses, including shipping, hog production, power generations, sugar refining and others. As I have expressed previously, this one is a winner.
- I first heard of Zygo (ZIGO) when II-VI (IIVI) attempted to buy them in 2010. Just the fact that IIVI was interested suggests that this is a company with unique technology. ZIGO, which has 8% inside ownership, makes equipment that enables companies in the semiconductor, flat panel display, solar, LED and other industries improve their manufacturing with greater precision.
- Vicor (VICR) is another newbie for me. The company sells modular and complete power systems for electronic equipment. Backlog soared in 2010, increasing 40%. The company invests heavily in R&D, averaging about 15% of sales over the past three years. The company's founder, who is 64, controls the company through B shares but owns almost 1/3 of the commons stock as well. This company doesn't appear to be very consistent to me, but growth took off last year and its earnings are at an all-time high.
- United Capital (AFP) is a hodge-podge of a company, with three divisions, including real estate investment and management, hotel operations and knitted wire manufacturing. The Chairman of the Board and CEO, who is 67 and had been with the company since 1981, owns 75% of the company. Not that the company filed to voluntarily delist earlier this month and is tendering at $30 for up to 3.6mm shares.
- Loral Space (LORL) manufactures satellites and also provides services. The Chairman of the Board controls about 38% of the stock, with the CEO owning a reasonable 3% as well. Additionally, Echostar owns 7%. The company has about $3 per share of cash net of debt. It isn't clear to me why the market is expecting their earnings to drop so much (as the PE below 5X would suggest). Interestingly, they are apparently weighing a bid for their Telesat unit, which they co-own with Canada's Public Sector Pension Investment Board.
- US Global Investors (GROW) is an investment advisor skewed heavily towards natural resource mutual funds. The CEO controls all of the voting stock.
- Unifi (UFI) is in the dynamic business of making yawns. I mean yarns. Kidding aside, this company, which is totally new to me, has extensive operations in Latin America and counts Hanesbrand (HBI) as an almost 10% customer. Insiders own about 30% of the company. It's not clear to me without more digging why the company has enjoyed so much success recently. In the last quarter, the company was squeezed on input pricing, but the company predicted that the effects would be very short-term, assuring investors that it had already recovered a lot of the lost margin after the quarter ended.
So, hopefully this list is as interesting to you as it is to me. With M&A activity most likely to stay elevated, some of these names could offer more immediate upside. I like PLPC right here. As far as the others, I would keep in mind that a little price momentum goes a long way in getting the comfort level up in these generally illiquid names. I would be careful with the names that are down double-digit.
Additional disclosure: Long PLPC in a model at Invest By Model