We continue our "buy and hold" series of stock picks which represent excellent bargains with a high growth potential and possibility of major breakouts. This time around our selections range from communications to technology and medical devices to retail, including some of the best known names in their respective domains.
Beckton, Dicksinson and Co (BDX) is a leading medical device manufacturer, primarily in the healthcare and diagnostics segments. The company sells worldwide and has a solid reputation in major markets. Shares last traded at $78.16, within a 52 week range of $68.07 to $89.75. The price-earnings ratio is currently at 13.14 times, with one of the highest dividend payout across the market, not just the industry. Dividend growth is nearly 13% for the last 20 years. the price-earnings ratio is well below the industry average of nearly 23 times, with the price to sales near industry par.
The company has recently acquired Carmel Pharma, while at the same time, it sold off some of its own businesses, including the ophthalmology and dwell catheter platforms, which we believe is a a step in the right direction, given the current market conditions as well as healthcare demands.
Rogers Communications (RCI) is a Canadian communications firm with a presence in every major telecom segment, including wireless, wireline, cable television and high speed internet. Wireless communications is the biggest segment of the company’s revenues, with 56% of the most recent quarter contributed by wireless. The company is organized as a holding company, with stakes in major subsidiaries such as Rogers Broadcasting and Rogers Sports Group, which hold further stakes in multiple businesses.
The stock last traded at $37.57, with an overall tight 52 week range of $40.82 - $33.62, representing low volatility. The price earnings ratio is near the industry average and the 5 year low price earnings at 14.4 times, considering the company just announced an 11% increase in the dividend. In addition, with far higher leverage than the industry at 245.39 (long term debt to equity), the company is also far more comfortable in terms of interest coverage at 4.3 versus 0.02.
Polo Ralph Lauren (RL) is one of the leading retailers and design houses known across the globe, and in a survey done of all major retailers in the US, RL ranked in the top 10 retailers in terms of sales per square foot. The company has beaten out other major high-end brands including Urban Outfitters (URBN) and Aeropostale (ARO) on the same metrics, registering over 9% year on year increase for sales per square foot.
The stock is at $129.26 currently, with the 52 week range of $74.5 - $141.71, currently trading near the 50 and 100 day moving averages and well above the 200 days, all of which indicate an upward trend. The price earnings is just about at par with the industry at 20 times, which although is on the higher side, the stock has enough fundamental momentum to push it upward.
Smith and Nephew PLC (SNN) is another top pick in the medical devices segment, although this time it's more focused on the orthopedic, endoscopy and wound management segments of the healthcare industry. The stock presents an excellent bargain with a last traded price of $46.38, near the 52 week low of $41.26, and a price earnings ratio of 13 times, compared to an industry average of nearly 23, near the 5 year price earnings low for both the industry and the company.
Fundamentally, the company is a solid bet with market leading technologies such as Legion/Genesis II surgery management system and the Anthology hip system. It has most recently acquired Tenet Medical Engineering and has some of the best margins in the industry, with the operating margin at 22% and net profit margin at 15%, both well ahead of industry counterparts. The lower than estimated EPS growth for the most recent quarter has made this an excellent buy.
Laboratory Corporation (LH) is an independent diagnostics firm providing patient testing services. The stock is well below the 50, 100 and 200 day moving averages, near the bottom of the 52 week range of $72.33 - $100.94. LabCorp, as it’s commonly known, has been in a bid to buy the shares of Orchid Cellmark (ORCH), based on its intention to buy out the company’s total shareholding at $2.8 per share; the deal is currently under scrutiny.
The price earnings ratio is currently at 15.75 times, compared to an industry average of 23.79. On the other side, the return on investment and return on equity are both well ahead of the industry par at 11.87 and 21.79 respectively. Last quarter earnings beat street estimates by $0.06 and total revenues beat estimates by $40 million. The company’s liquidity is in excellent shape considering the industry situation, with an interest coverage ratio of 22 times, compared to an industry par value of just 3 times.
Amphenol Corp (APH) is our technology pick, a manufacturer of specialty cable and various connectors, including fiber optic ones, for use in electronic devices and the cable television industry. Near the lower band of the 52 week band ($40.44 - $59.11), the last traded price of $43.27 represents an excellent buy opportunity considering the stock is so far below the moving averages (50,100, 200).
The main competition for companies such as Amphenol comes from Taiwanese component makers, that compete at a lower price. Amphenol has a solid market reputation and compared with Molex (MOLX), the free cash flow margin is far ahead at 10% compared to 5% for the latter. Price to earnings is on the industry mark at 14 times, but the concern lies in the dividend payout which is basically nothing (1.91) compared to the industry (26.91).
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.