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Finding a stock with any type of sustained positive momentum is more of a rarity these days, given tough market conditions. In our view, this can cause some investors to hold onto names longer than they should or to not continually re-evaluate them. That becomes a dangerous game when these companies operate with high leverage and are trading a strong premium. Now we don't want to rain on anyone's parade, but we have identified a group of stocks that we feel should re-evaluated to see if there new stock is justified given price-multiple premium, aggressive financial leverage and impressive returns. The forward P/E is a price multiple valuation metric, which is similar to the current P/E ratio, except that it uses the forecasted earnings instead. While this number might not be as accurate because it uses “forecasted” numbers, it does offer the benefit of illustrating analysts’ expectations of a firm. If the market believes that earnings will grow moving forward, then the forward P/E should be lower than the current P/E. Financial Leverage, also known as the Equity Multiplier, illustrates how a firm is financing its assets. The lower the number the more a firm is financing its assets internally through stockholder equity. The higher this metric is the more the firm is relying on debt to finance its assets.

We first looked for stocks trading with a high price-multiple premium (forward P/E>20) that have outperformed the S&P 500 in the last month. From this narrowed list of candidates, we then looked for companies that also operate with a high degree of leverage. We did not screen out any sectors or market caps.

The list is ranked from highest to lowest by the 1-month return:

1. Liz Claiborne, Inc. (LIZ)

Sector

Consumer Cyclical

Industry

Apparel Manufacturing

Market Cap

$834M

Beta

2.64

The company engages in the design and marketing of a range of apparel and accessories. LIZ has a forward P/E ratio of 35.46 and operates with a financial leverage ratio of 169.88. The company has gained in value by 90.31% in the last month. The short interest was N/A as of 10/14/2011.

2. Flagstar Bancorp, Inc. (NYSE:FBC)

Sector

Financial Services

Industry

Savings & Cooperative Banks

Market Cap

$438M

Beta

2.39

The company offers consumer and commercial financial products and services to individuals, and small and middle market businesses in Michigan, Indiana and Georgia. FBC has a forward P/E ratio of 52.08 and operates with a financial leverage ratio of 10.83. The company has gained in value by 44.44% in the last month. The short interest was N/A as of 10/14/2011.

3. Alaska Communications Systems. (NASDAQ:ALSK)

Sector

Communication Services

Industry

Telecom Services

Market Cap

$354M

Beta

0.73

The company Alaska Communications Systems Group, Inc., through its subsidiaries, provides integrated communications services in the State of Alaska.ALSK has a forward P/E ratio of 20.12 and operates with a financial leverage ratio of 28.63. The company has gained in value by 32.66% in the last month. The short interest was 24.40% as of 10/14/2011.

4. Employers Holdings, Inc. (NYSE:EIG)

Sector

Financial Services

Industry

Insurance - Property & Casualty

Market Cap

$660M

Beta

1.14

The company operates in the commercial property and casualty insurance industry in the United States. It provides workers' compensation insurance to small businesses engaged in low to medium hazard industries. EIG has a forward P/E ratio of 30.65 and operates with a financial leverage ratio of 7.10. The company has gained in value by 28.65% in the last month. The short interest was 4.00% as of 10/14/2011.

5. Masco Corporation. (NYSE:MAS)

Sector

Basic Materials

Industry

Building Materials

Market Cap

$3,381M

Beta

2.52

The company Masco Corporation manufactures, distributes and installs home improvement and building products for home improvement and new home construction markets principally in North America and Europe. MAS has a forward P/E ratio of 25.25 and operates with a financial leverage ratio of 6.48. The company has gained in value by 21.89% in the last month. The short interest was 5.00% as of 10/14/2011.

6. Taubman Centers, Inc. (NYSE:TCO)

Sector

Real Estate

Industry

REIT - Retail

Market Cap

$3,608M

Beta

1.81

The company Taubman Centers, Inc. operates as a real estate investment trust. TCO has a forward P/E ratio of 59.52 and operates with a financial leverage ratio of 63.70. The company has gained in value by 20% in the last month. The short interest was N/A as of 10/14/2011.

7. Regal Entertainment Group. (NYSE:RGC)

Sector

Consumer Cyclical

Industry

Leisure

Market Cap

$2,246M

Beta

1.00

The company Regal Entertainment Group, through its subsidiaries, operates a theatre circuit in the United States. RGC has a forward P/E ratio of 21.32 and operates with a financial leverage ratio of 310.77. The company has gained in value by 17.32% in the last month. The short interest was N/A as of 10/14/2011.

8. Gartner, Inc. (NYSE:IT)

Sector

Technology

Industry

Information Technology Services

Market Cap

$3,799M

Beta

1.11

The company Gartner, Inc. provides independent and objective research and analysis on information technology (IT), computer hardware, software, communications and related technology industries. IT has a forward P/E ratio of 21.88 and operates with a financial leverage ratio of 6.72. The company has gained in value by 13.59% in the last month. The short interest was N/A as of 10/14/2011.

We hope this list helps as investors do their own due diligence and research on overvalued stocks that are currently rallying. *Company profiles were sourced from Finviz

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: 8 Overvalued, High Leverage Stocks That Keep On Rallying