In this article, I analyze value stocks that are selling at a discount to fair value. Each one of these socks can perform well in a soft market in early 2012. Please use my analysis as a starting point for your own due diligence.
Core Laboratories N.V. (NYSE:CLB): Core Labs has gone from just under $100.00 per share to over $120.00 per share, blowing through its previous 52 week high of $118.50 per share. It should be noted that the stock has been extremely volatile over the past 6 months, ranging from $85.00 per share to $120.00 per share, so it's not a good recommendation for the faint of heart. With global demand for oil ever increasing and proven reservoirs depleting the need to extract as much gas and oil as possible from these reservoirs bodes well for Core Labs.
Not only does the company operate (core analysis) out of its new strategically placed laboratories in Qatar and Abu Dhabi, it also manufactures patented, highly branded products that optimize well production by achieving debris-free perforation, proficient fracture stimulation and efficient clean-up. These are standard steps taken to optimize oil extraction to its fullest extent, and the geographic locations also optimize Core Lab's international growth opportunities (see this article). They also represent a competitive advantage it holds over its two much larger rivals, Schlumberger N.V. (NYSE:SLB) and Halliburton Company (NYSE:HAL), which are already well established in the Middle East.
Celgene (NASDAQ:CELG): Celgene has fallen from the $65.00 mark to $60.00 per share, only to regain the ground it lost. Other than a sharp rise from lows of $48.00 and $52.00 in February and August the trend pattern only reveals resistance around the previous 52-week high of $65.86. A new high was reached in late October of $68.25 per share (see this article). This somewhat volatile trend pattern seems to stem from the company's mixed results on the application of its primary financial growth driving drug Revlimid in Europe -- positive and negative side effects. So this makes the stock rather speculative, and monitoring of developments would be prudent if you are considering investing in the company.
In that case, let's see how Celgene's overall growth compares to two of its closest competitors, Amgen (NASDAQ:AMGN) and Novartis AG (NYSE:NVS). Amgen currently has a PEG ratio of 1.25 with forecast earnings growth of 7.33% in 2012 and 8.04% in 2013. Novartis has a PEG ratio of 1.95 and forecast earnings growth of only 2.83% in 2012 and 3.07% in 2013. While Celgene has a PEG ratio of a comparatively cheap 0.18, it also has a relatively outstanding forecast earnings growth of 16.79% in 2012 and 19.89% in 2013.
Dollar Tree Stores (NASDAQ:DLTR): Dollar Tree has been on a pullback from a long term trend that has been in development since February, when the stock was at $50.00 per share. The stock has since resumed this trend and hopefully you took his advice at the time (see this article). Dollar Tree Stores sell the majority of their merchandise for $1.00 by importing 40% to 50% of their inventory from low wage foreign countries and the remainder through closeouts, discontinued items and close associations with domestic manufacturers. The company caters to low to middle income customers and does especially well during recessions.
Dollar Tree Stores differs itself from big-box discount stores like Wal-Mart (NYSE:WMT) and Target (NYSE:TGT) by store size in general and location in particular. Keeping its cost down and providing convenience on one hand and targeting urban areas, their customer base and places were a large store would not be feasible on the other.
The company's main competitors in this market are Family Dollar Stores (NYSE:FDO) and 99 Cents Only Stores (NYSE:NDN), and I thought we would see how they compare in terms of price and growth for the next year. Family Dollar Stores has a PEG ratio of 1.08 and forecast earnings growth of 17.11%, 99 Cents Only Stores has a PEG ratio of 1.37 and forecast earnings growth of only 11.11% and Dollar Tree Stores has a PEG ratio of 1.21 and forecast earnings growth of 25.42%. This reveals that, although Dollar Tree is priced in the mid-range compared to its rivals, the company's growth prospects outshine them both.
Snap-On (NYSE:SNA): A month ago Snap-On was at $55.00 per share and since then it has fallen to $50.00 per share. This warrants a closer look. In July of this year Snap-On was riding high at its 52 week high level of $64.36 but a onetime, litigated dispute that did not go in their favor knocked the stock down to its 52 week low of $42.41. Over-reaction? (See this article.) Since then the stock has been making a comeback and, rationally thinking, the stock is still undervalued using these solid fundamentals as evidence.
The recession did not affect Snap-On as it did most other tool manufacturers, because 70% of the company's sales go to the automobile industry. It may have actually benefited the company in some respects as a majority of consumers will get their car repaired rather than trade it in on a new one in a downturn. With 50% of the market share in tool sales to auto mechanics Snap-On has a strong advantage over its two closest competitors Stanley Black & Decker Inc (NYSE:SWK) and Danaher (NYSE:DHR) as confirmed by a comparison of their forecast earnings growth for the year: Stanley Black & Decker Inc, 25.51%; Danaher, 22.48%; Snap-On, 41.32%.
Target (TGT): Target stock has been range-bound pretty much between $52.00 per share and $54.00 per share. In a recent article Target announced it planned to sell its credit card business and focus on retail. The company reported in the third quarter that credit card revenues had declined 8.2% from a year earlier. Target management now just wants to focus on its retail stores and online shopping through its new web site (see this article). The management will also be busy over the next few years, developing an international market for the first time. Earlier this year Target acquired 220 Zellers stores in Canada, and it hopes to convert 150 of them to Target stores by 2014.
The company's two closest competitors are Wal-Mart Stores (WMT) and Costco Wholesale (NASDAQ:COST), and though these three stores have different business models, they do compete in certain marketing aspects of the business. Wal-Mart's average customer is below the national average income level and Target's average customer is above. So Wal-Mart supplies discounted brand names and other merchandise of lower quality, while Target tries to supply chic or better-quality merchandise at a higher price -- but they are both considered big-box discount stores. Costco Wholesale, on the other hand, sells products in bulk and provides more diversity in products than Target, but they both compete for customers above the national average. For a comparison of stock prices, Wal-Mart has a PEG ratio of 1.18, Costco has a PEG ratio of 1.58 and Target has a PEG ratio of only 1.02. This indicates that Target is the cheaper of the three in terms of growth going forward.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.