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“’My momma told me, ‘You better shop around.’” – Smokey Robinson

Shopping around is a foundation of smart stock market investing. Independent research allows investors to go beyond familiar stocks to shop lesser-known alternatives. As simple as it sounds, you are better off investing in the stock market by shopping around than by using personal experience to make a stock market investment.

Consider International Business Machines Corp. (NYSE:IBM). It is one of the most researched companies on the web. IBM has provided impressive returns for investors in the past and even Warren Buffett’s Berkshire Hathaway has taken a 5.4% stake IBM shares. Should investors ignore less familiar stocks and invest solely in “Big Blue” because they have heard of it?

No, certainly not. In addition to IBM, investors ought to consider comparable, lesser-known value investments which rival IBM in all metrics but fame. The following stocks are comparable to IBM as investment prospects:

Ticker

Company

Industry

EPS Growth Past 5 Yrs

EPS Growth Next 5 Yrs

P/E (ttm)

ALTR

Amphenol Corporation

Diversified Electronics

27%

13%

14.33

ARO

Aeropostale, Inc.

Apparel Stores

30%

13%

10.93

BKE

Core Laboratories NV

Oil & Gas Equipment & Services

20%

10%

13.38

EBIX

Coach, Inc.

Textile - Apparel Footwear & Accessories

58%

15%

13.2

MED

Liquidity Services, Inc.

Catalog & Mail Order Houses

52%

18%

10.88

ORCL

The TJX Companies, Inc.

Department Stores

21%

12%

14.77

IBM

International Business Machines

Diversified Computer Systems

19%

11%

14.42

Each of these stocks has a price-to-earnings ratio comparable to IBM or lower, indicating that each is as cheap as IBM. Moreover, each of the stocks has enjoyed higher earnings per share growth than IBM in the past five years and is expected by analysts to continue to have higher EPS growth over the next 5 years. Thus, by growth and value metrics, each of these stocks is comparable or more attractive than IBM.

Furthermore, each of these stocks is a high quality stock, like IBM. Each of these stocks has had over 20% annualized average return on equity over the past 10 fiscal years. Moreover, each of these stocks has an Altman Z-score that qualifies as “safe.”

Ticker

10-Year Average ROE

Altman Z-score

ALTR

21.7%

7.66

ARO

42.2%

7.22

BKE

21.6%

12.30

EBIX

28.6%

8.14

MED

38.9%

9.73

ORCL

27.8%

4.67

IBM

29.0%

4.44

Even though IBM stock has formidable metrics, these other stocks are just as attractive. Investors ought to consider all of these stocks rather than stick to IBM on the basis of hype.

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

Disclaimer: This research is NOT a guarantee. This article uses third-party data and may contain approximations and errors. Please check estimates and data for yourself before investing.

This article was written to provide investor information and education, and should not be construed as a guarantee or investment advice. I have no idea what your individual risk, time-horizon, and tax circumstances are: please seek the personal advice of a financial planner.

*The Altman Z-Score is a measure of bankruptcy risk that is not based on stock price volatility. This score places companies into three groups: “safe” (Z-score > 2.99), “grey” (Z-score between 2.99 and 1.81), and “distressed” (Z-score < 1.81), and is surprisingly useful for identifying bankruptcy risk in the coming year. This method of segmenting companies uses of fundamental (financial statement) data and market capitalization only, not on price volatility. Beyond credit risk prediction, companies with higher Z-scores have historically outperformed companies with lower Z-scores, in aggregate. One sector has not been accurately modeled: Altman’s Z-score has not accurately predicted the bankruptcy risk of financial companies.

“Distressed” was a label coined by researchers, and should not be taken to mean that any company is bankrupt or in default on the basis of this calculation alone. Credit scoring is not fate, only prediction based on relative past performance of companies grouped by key variables. Time will tell.

Volatility has be incorporated into a credit scoring to improve accuracy and extend it to financial companies, but this would reduce the value of a fundamentals-only model for indicating attractively-priced put options.

Source: 6 Stocks That Rival IBM