In light of the recent sell-off and with more volatility possibly in store, investors should be armed with watch lists of stocks and be prepared to move quickly. I spent much of the trading day reviewing 9 stocks which have intrigued me for some time from my watch list.
|COMPANY||Current Price||Market Cap||Yield||PE||EV / EBITDA||Debt to EBITDA|
|Automatic Data Processing Inc (ADP)||$44.81||22.159B||1.42 (3.03%) ex-div:"Jun 8"||18.6||10.2||0.0|
|Applied Industrial Technologies Inc (AIT)||$25.38||1.075B||0.70 (2.60%) ex-div:"May 12"||12.1||6.0||0.0|
|Ark Restaurants Corp (ARKR)||$13.44||47.0M||1.00 (7.50%) ex-div:"Jun 23"||21.2||4.8||0.0|
|Campbell Soup Co (CPB)||$29.77||9.556B||1.145 (3.73%) ex-div:"Jul 7"||12.6||8.0||2.0|
|Diamond Offshore Drilling Inc (DO)||$58.64||8.153B||3.50 (5.79%) ex-div:"Jul 28"||8.8||5.2||0.9|
|Gap Inc (GPS)||$15.53||8.548B||0.426 (2.61%) ex-div:"Jul 1"||8.9||3.1||0.5|
|Teva Pharmaceutical Industries Ltd (TEVA)||$38.25||34.081B||0.875 (2.20%) ex-div:"Aug 4"||11.4||7.8||1.2|
|Whirlpool Corp (WHR)||$57.42||4.387B||1.79 (2.99%) ex-div:"May 18"||18.2||4.1||1.7|
|Wal-Mart Stores Inc (WMT)||$48.41||168.1B||1.398 (2.77%) ex-div:"Aug 10"||11.0||6.7||1.7|
Recent events have only driven to reinforce my investment strategy of favoring income-yielding investments, preferably with defensible business positions, solid balance sheets and proven ability to weather adverse economic conditions. All of the stocks listed pay dividends exceeding 10-Year US Treasury yield so one requirement down.
Automatic Data Processing, Inc. provides business outsourcing solutions as well as a range of human resource (HR), payroll, tax and benefits administration solutions from a single source. The company regularly outperforms industry competitors, delivering ROE of 21.83% vs 15.93% for peers and ROI of 17.59% vs 12.98%. With no debt and a dividend yield topping 3%, ADP is definitely a prospect, though an enterprise value (EV) to EBITDA ratio over 10 suggests the company has yet to reach basement bargain levels.
Applied Industrial Technologies, Inc. supplies customers in a range of industries with products, including bearings, power transmission components, fluid power components and systems, industrial rubber products, linear motion components, tools, safety products, and other industrial products. Like ADP, AIT outperforms in its industry with 16.28% ROE and 14.66% ROI vs. industry averages of 10.79% and 8.76% respectively. It also yields near 3% with no debt on its balance sheet but with a lower 6.0 EV/EBITDA ratio, perhaps reflecting its capital intensive business compared to ADP.
Ark Restaurants Corp. owns and/or operates 22 restaurants and bars, 29 fast food concepts and catering operations through its subsidiaries in prime areas like New York City, Washington, DC, and Las Vegas. Its returns vs. industry peers are not as impressive as ADP and AIT at 7.44%, ROE vs 13.04%, and ROI at 8.19% vs: 9.89%. However, the company has no debt and yields an outsized 7.5%. With heavy insider ownership, ARKR management has aligned interests with shareholders.
Campbell Soup Company sells convenience food products in four segments: U.S. Soup, Sauces and Beverages; Baking and Snacking; International Soup, Sauces and Beverages, and North America Foodservice. 74.90% ROE vs the industry's 20.06 may reflect the company's use of leverage (at 2x debt-to-EBITDA) while ROI of 18.73% is more in line with the industry's 16.04%. If the U.S. is entering another recession (or perhaps more truthfully, never escaped the last one), CMB may stand to benefit as consumers dine out less and investors will be compensated tih a 4% yield.
Diamond Offshore Drilling, Inc. is a global offshore oil and gas drilling contractor and an operating subsidiary of Loews Corporation (L). Like most of the companies on this list, DO outperforms its peer on an ROE and ROI basis at 24.56% vs. 7.65% and 15.58% vs. 4.71%, respectively. With the Tisch family at the Loews helm, investors can be assured DO will continue to emphasize shareholder return via regular and annual dividends. The company operates in the sweet spot of deepwater drilling and at 5.2x EV/EBITDA, the stock looks cheap (compare to Transocean's (RIG) 7.6x EV/EBITDA), but investors can rule out any buyout offer as a catalyst.
The Gap Inc. is a global specialty retailer, offering clothing, accessories, and personal care products for men, women, children, and babies under the Gap family of brands, including Gap, GapKids, babyGap, GapBody, Banana Republic, Old Navy, Piperlime, and Athleta brands. The company gets little love from investors despite higher average returns vs. industry: ROE 26.16% vs 16.27% and ROI 19.25 vs 13.39%. The stock offers a 2.6% yield and with its copious free cash flow, moderate debt level, and EV/EBITDA around 3, it could be a private equity target sometime down the road.
Teva Pharmaceutical Industries Limited is a global pharmaceutical and drug company selling generic drugs in all treatment categories. TEVA is a company I have watched for some time, due to its immense profitability and good positioning to benefit from demographic trends in various developed nations. TEVA's story and stellar returns of 14.68% ROE vs 10.27% for the industry, and ROI of 11.23% vs. 7.51%, is well known among investors. Selling at 7.8x EV/EBITDA, the stock is priced at a premium to most of the stocks listed.
Whirlpool Corporation manufactures appliances like laundry appliances, refrigerators, cooking appliances, dishwashers, and mixers in 12 countries under 13 brand names and markets products globally. Its returns lag industry averages at 6.37% ROE vs 10.28% for peers and ROI of 3.12% vs 8.99%. Lingering concerns about the US housing market may impact shares for some time, but investors are paid to wait with a 3% dividend.
Wal-Mart Stores, Inc. is the largest retail company in the world, operating in three business segments: Walmart U.S., Walmart International and Sam's Club. WMT has used its considerable scale to deliver top-class returns of 23.63% ROE and 14.14% ROI vs. the industry returns of 12.83% and 8.35%, respectively. The company's outperformance during the Great Recession was one of few positive stories and investors may want to consider hiding out here and collecting near 3% if more tough times lie ahead.