As the market continues to sell off, more and more stocks are entering into bargain territory. I usually focus on large cap stocks, however some small caps are starting to look enticing based on valuation. Here are three I think look interesting at these price levels.
Interpublic Group (IPG) – The Interpublic Group of Companies, Inc., through its subsidiaries, provides advertising and marketing services worldwide. It offers various services across marketing disciplines, including consumer advertising, digital marketing, media buying and planning, public relations, events marketing, search engine marketing, e-commerce solutions, and specialized communications disciplines. The company also provides various diversified services, such as meeting and event production, sports and entertainment marketing, corporate and brand identity, and strategic marketing consulting. Its global brands include McCann, Draftfcb, and Lowe; and full-service agency brands comprise Campbell-Ewald, Campbell Mithun, Hill Holliday, the Martin Agency, Mullen, and Gotham.
Overview – IPG is down around 30% since early March but looks like a bargain at these price levels for the following reasons:
- IPG is trading at 15 times this year’s expected earnings and just 12 times 2012’s consensus EPS.
- Despite growing earnings close to 30% annually over the last five years, IPG sells for less than 1 times its projected five year PEG.
- IPG has a strong balance sheet with more cash than debt and yields a respectable 2.4%.
- The company is a prodigious cash flow machine and is selling at just 6 times operating cash flow, which is in the lower end of its five year valuation range.
- It is significantly under some analysts’ estimates at $9.81 a share. S&P has a price target of $12 on IPG as is Goldman Sachs and TheStreet is at $16.
Celestica Inc. (CLS) – Celestica Inc. provides electronics manufacturing services and solutions to original equipment manufacturers in the consumer, communications, enterprise computing, industrial, aerospace and defense, healthcare, and green technology sectors in Asia, the Americas, and Europe. The company offers supply chain management, product design, prototyping, systems assembly and test, product assurance, failure analysis, quality management, order fulfillment and logistics, and after-market services, as well as green services comprising removal of hazardous substances and waste management/recycling. Its products are used in various end products, including smart phones; servers; networking, wireless, and telecommunications equipment; storage devices; aerospace and defense electronics, such as in-flight entertainment and guidance systems; healthcare products; audiovisual equipment, including set-top boxes; printer supplies; peripherals; and a range of industrial and green technology electronic equipment consisting of solar panels and inverters.
Overview – Celestica has also seen a significant selloff since early March and is down approximately 30% in that time span. CLS is one of cheapest stocks I have come across at under $9 a share for a variety of reasons:
- It has almost $2.50 a share in net cash on its balance sheet.
- It has handily beat earnings estimates the last three quarters and is selling at just 8 times estimated earnings. Less than six times projected earnings if you subtract the net cash on the balance sheet.
- CLS sells at less than .3 times trailing revenues and less than .9 times its projected 5 year projected PEG.
- Despite growing EPS an average of over 15% annually over the past five years in a very difficult environment, it is selling in the bottom third of its five year valuation range based on P/E.
- At less than $9 a share it is significantly under analysts’ price targets. Citigroup has a price target of $12 on Celestica as is Paradigm Capital.
Power-One (PWER) – Power-One, Inc. designs, manufactures, and markets power conversion and power management solutions for the renewable energy (RE), communications infrastructure, and other technology markets. Its products include alternate current (AC)/direct current (DC) power supplies that convert AC into DC voltage used primarily in networking systems, network servers and storage, and industrial equipment; DC/DC converters, including high-density and low-density brick converters that are mounted on printed circuit board within the equipment, as well as Point-of-Load converters that power devices within an intermediate bus architecture and in other applications primarily to power communications infrastructure equipment; and DC power systems, which are used for providing additional power capacity in the event of an AC input disturbance or power outage primarily by power communications networks and cellular communications systems.
Overview – If Celestica is cheap, PWER offers rock bottom value. After dropping almost 50% in the last year, PWER is ridiculously undervalued at just over $7 a share
- It has almost $2.00 a share in net cash on its balance sheet and sells at less than 4 times operating cash flow.
- It is selling at around 7.5 times this year’s projected earnings and around 6.5 times 2012’s consensus EPS.
- It looks like the stock is putting in a technical base in the $7 to $8 range (See Chart).
(Click to enlarge)
- PWER sells at the bottom of its five year valuation range based on P/E, P/B, P/S, and P/CF.
- Despite growing revenues north of 14% annually over the past five years, PWER sells at around .6 sales and a projected five year projected PEG of less than .5.