It is very uncommon to find a company with solid forecasted growth rates and low levels of debt to trade below book value. I screened for firms trading below book value and a Forward P/E of 15 or less. To pick companies with strong growth rates, I selected firms with a year over year growth rate, and a projected 1 year growth rate of 15%. I limited my search to firms with a debt to capitalization ratio of less than 33%, a market capitalization of greater than $100 million, and a share value of greater $5. Only 6 firms passed this stringent screen. In this article, I will present my preliminary price targets for 5 firms from this list. I have left out Luby's, Inc. (LUB), as it does not meet my personal investing criteria.
The remaining 5 firms are as presented below:
Kinross Gold Corp (KGC)
KGC is probably the most popular name on this list, with a market capitalization of $12.57 billion. The company is involved in the exploration, acquisition, development and operation of gold mines in USA, Russia, Africa and other regions. The company trades at a P/B ratio of 0.84 and a forward P/E of 10.9. Analysts expect the firm to accelerate its earnings from 24% this year to 42% next year. The company has a debt to capital ratio of 8.3%. Applying a multiple of 19.8 (historical 5 year average) to 2012 EPS estimate of $1.02, my price target of $20 a share is obtained. The stock currently trades at $11.05. It has traded in a range of $9.96 and $18.25 during the past 1 year.
Iridium Communications Inc. (IRDM)
IRDM is a Bethesda, MD based company with a market capitalization of $603.94 million. The company provides mobile voice and data communication services to businesses, the US and foreign governments, NGOs and consumers using its 66 satellites. The company grew its earnings at an annual rate of 178% during the last 5 years, and is expected to increase its earnings at a 19% clip during the next 5 years. It currently trades at a P/B ratio of 0.87. The company has a debt to capital ratio of 28.63%. My preliminary price target for IRDM of $11 is obtained by applying an industry average P/E of 16.9 to 2012 EPS estimate of $0.65. The stock currently trades at $8.25 a share.
Fresh Del Monte Produce Inc. (FDP)
FDP is a Cayman Islands based holding company. It produces, markets and distributes fruits and vegetables, juices, beverages and snacks in Europe, Africa and the Middle East. The company has a market capitalization of $1.44 billion and a book value of 0.85. It grew its earnings by 16% last year and is expected grow at an annual rate of 7% over the next 5 years. Applying a P/E of TTM 15.9 to 2012 EPS estimate of $2.61, my price target of $38 is obtained. The stock currently trades at $24.89 and has a dividend yield of 1.61%.
Consolidated Water Co. LTD (CWCO)
CWCO is an operator of seawater desalination plans and water distribution systems serving customers in Cayman Islands, Belize, the British Virgin Islands and The Bahamas. The company trades at a price to book value of 0.92 and has a very respectable debt to capital ratio of 11.82%. Earnings declined at an annual rate of 5% during the last 5 years. Going forward, analysts expect a 20% growth in earnings. The company did post year over year growth of 20% this year and trades at a forward P/E of 13.2. My price target of $12 is obtained by applying a multiple of 20 (a combination of industry average and CWCO historical multiples) to 2012 EPS estimate of $0.61. The stock currently trades at $8.25, and pays a very respectable dividend of 32 cents a share translating into a yield of 3.64%.
Lihua International Inc. (LIWA):
LIWA is a Chinese company is engaged in the production of copper replacement cable and wire products. The company has a market capitalization of just under $200 million. It trades a forward P/E of just 2.6 and a P/B ratio of 0.95. Of course, the P/B ratio is as good as the accuracy of the book value. With Chinese firms, this has been a concern lately, because of faulty and untrustworthy accounting practices. LIWA was recently covered in an article by Steven R. Chapski on Seeking Alpha. He outlined the "missing loans" at LIWA. Like most Chinese small cap companies, I would advise being cautious with this stock.
The firm does boast of a year over year growth rate of 20%. The EPS is expected to grow by 44% next year to $2.42. Applying a P/E of 5 (using the average of last 2 years), my price target of $12 is obtained. The stock currently trades at $6.4 a share.
As always, please do not consider this a "buy" list, but rather, use this list as a starting point for your research. Of the companies listed above, I am particularly intrigued by CWCO, IRDM and FDP, and will hopefully perform detailed analyses of these firms in the near future.