Today we look at seven companies with excellent valuation expansion potential that are currently trading at bargain prices. These are undervalued stocks that could take flight. Before you make an investment in any of the names below, please do your own due diligence:
Henry Schein (HSIC) is a healthcare firm providing equipment such as dental chairs, x-ray equipment and other small items, with a specialty in the dental healthcare and animal care segments. In addition, it provides software and other related items such as practice management software. The company is worth nearly $5.6 billion having IPO'ed only in 1995, and trades around $60 in a 52 week range of $55-$75.
The stock is currently trading at a price / earnings ratio of only about 16 times, which doesn’t seem too high when you consider competitors such as Patterson Companies (PDCO) that saw a 9.9% fall in revenues compared to HSIC, which saw a 15% increase. Even though it’s below PDCO in terms of raw margins, it is well above other competitors such as McKesson (MCK) and Cardinal Health (CAH). Liquidity numbers are not as great as they could be, but they are comfortable and expected for a company with a 15% EPS growth (in the last 5 years).
Lockheed Martin (LMT) is one of our favorite large-cap aerospace companies, with a price / earnings ratio of under 10 times, compared to an industry average of over 20 times. This is after taking into account the return on equity of over 75% and return on investment of over 11%, leaving the competition behind in the dust. With a dividend yield of 4.19% and 20% annual dividend growth for the last 5 years, there is no question that this an all time winner.
The stock has taken a bit of a tumble lately on account of fears of defense budget cuts. However with an estimated 7% growth in earnings per S&P, there is no reason to doubt the future of this company. With an expected forward price earnings growth of just about 1.0, the stock could not come with a better price tag.
Nutraceutical International Corp. (NUTR) is a manufacturer of nutritional supplements with some of the best known brands such as SOLARAY and Nature’s Life, to name a few. The company is a small one, with only about $134 million in market capitalization and around $180 million in revenues. In addition to its own brands, the company supplies nutritional supplements in bulk to other manufacturers. The stock is currently trading at a price / earnings multiple of 8.7 times, with a last traded price of $13.41.
Being a small company, it tends to escape the attention of aggressive traders, and there lies its solid potential. The price / earnings is below the 5 year low and the price is well below the 50, 100 and 200 day moving averages. It has some of the best profitability ratios in the industry, and has suffered in pricing due to weak revenue and earnings performance in the most recent quarter.
General Dynamics (GD) Is another large cap, high technology manufacturer with a solid presence in business aviation, ship building, combat vehicles, weapon systems and much more. Clients include both the commercial and government segments, with some of the biggest brands in the business, particularly Gulfstream, the leader in business aviation, in its portfolio. The stock is currently trading at $59, near the 52 week low of $57.39.
With a price / earnings ratio of 8.4 and dividend yield of 3.2%, the company offers a solid bargain and excellent returns potential, both in terms of cash and capital appreciation. As a market leader, General Dynamics should be able to weather the storm better than some of its key competitors, including Northrup Grumman (NOC), and the $20 million Navy and $900 million US Air Force contract are proof of the fact. Bear in mind that for each government contractor, the future is full of obstacles; General Dynamics is not immune but simply a better bet.
National Oilwell Varco (NOV) is a leading manufacturer of oil drilling equipment and services. The company operates three main segments:
- Rig technology, which provides equipment for oil well construction, such as top drives, rig controls, etc,
- Petroleum Services, which produces equipment for drilling, such as pipes, pumps and control systems, and
- Distribution services, which is essentially the supply chain services division.
The stock is currently at $62.66, with a 52 week range of $86.60 - $40.13, a price / earnings multiple of around 15 times and earnings per share of $4.10 (most recent quarter). There are some concerns regarding the liquidity situation, with an interest coverage ratio of .1 times and relatively poor margins when compared to industry averages. The company currently does not pay a dividend and bears a debt load of 29% to equity.
Nu Skin enterprises, Inc (NUS) is a global direct sales cosmetics and nutritional supplements company. Around 86% of the revenues are non-U.S., indicating excellent revenue diversification. The stock is currently trading at $41.60, near the 52 week high of $43.79, and definitely not without reason. With Japan’s aging population, a market accounting for nearly a third of revenues, the future is anything but aging. The company owns popular products, including the exceptionally successful ageLOC.
The price may look expensive, but in reality it has gained based on fundamental reasons. The stock just posted an upgrade by Wedbush Morgan, and is still well below the industry price / earnings multiple of 36 times at just over 20 times. Return on assets and investment have completely beaten the industry averages into the ground, and with a forward estimate of 13% for earnings growth, the stock is bound for the skies.
Our final pick today is Veeco Instruments Inc. (VECO), a technology firm involved in the manufacture of hard drives, solar panels and high brightness LEDs, among other things. Its customers are in the commercial (manufacturers of said LEDs and solar panels) and scientific research segments. With a market capitalization of $1.29 billion, the stock has a price / earnings of a meager 5 times compared to over 36 times for the industry. The stock is currently trading at $31.91, near the 52 week low of $30.8.
As such, the demand for Veeco’s products is derived from-- and for the most part heavily ‘invested’ in-- the semiconductor industry. The company has decided to divest from CIGS solar panels, and apart from the one-time restructuring and inventory write off charges on the income statement, earnings would have risen by 40%. In addition, Veeco has excellent liquidity and interest coverage over 15 times compared to less than 4 times for the industry.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.