I feel that in order to see substantial gains in the market, one must do substantial research to find stocks that are being sold at a true "value." When looking for stocks that are "undervalued" there are several facts one can dissect, and even speculation can be used. Whatever method is used to find stocks that are considered undervalued, one popular method is PEG (Price/Earnings to Growth). I like to use this ratio because unlike the P/E, it takes into account growth. Below I have screened four stocks that I believe to be undervalued given their < 1 PEG. Not only are they undervalued, but these stocks are relatively safe compared to the market given their <1 Beta. These stocks also have >10% EPS forecast for the next fiscal year.
Coinstar, Inc. (CSTR) is a provider of automated retail solutions. Coinstar's core offerings in automated retail include its digital video disk (DVD) business, where consumers can rent or purchase movies from self-service kiosks (DVD Services segment), and its Coin business, where consumers can convert their coin to cash or stored value products at coin-counting self-service kiosks (Coin Services segment). The current market price is $60.14 with a one-year analyst price target of $69.13. This represents a 14.95% upside potential. Coinstar appears to be a very safe bet given its .63 Beta and a great value considering its PEG of .80.
Coinstar's current quarter consensus estimate has increased over the past 90 days from 0.84 to 0.88, a rise of 5.1%. This improvement is significantly greater than its industry average. Coinstar's days sales in receivables of 5.7 is substantially shorter than the Personal Services Industry average of 26.1. Also, based on forward PEG, Coinstar currently trades at a 34% discount to its Personal Services Industry peers and an 8% discount based on trailing P/E. Coinstar has beat analyst EPS consensus for six straight quarters, and given the consensus of high growth expectation, beating these forecasts would accelerate stock price growth. For fiscal year 2012, analysts estimate that Coinstar will earn $4.11. For fiscal year 2013, analysts estimate that Coinstar's earnings per share will grow by 13% to $4.64.
Moving Average Convergence/Divergence (MACD) indicates a Bullish Trend and its Up/Down volume pattern indicates that the stock is under accumulation. Also, the 10, 21, 50, and 200 day moving averages of $57.83, $54.67, $49.30, and $48.5 respectively represent a bullish trend. Recently, Benchmark reiterated its "Buy" consensus on this stock and I agree.
DIRECTV (DTV) is a provider of digital television entertainment. The current market price is $45.61 with a one-year analyst price target of $53.63. This represents a 17.58% upside potential. Despite is cheery upside potential, DIRECTV is a safe bet given its Beta of .83, and the fact that this company carries a PEG of 0.56 shows there is a lot more room for growth.
The company generates substantial free cash flow and has an aggressive share buyback strategy, both of which act as positive catalysts in the company's favor. The company has a strong credit rating and excellent brand recognition. Based on the trailing P/E, DIRECTV currently trades at a 34% discount to its broadcasting industry peers. Despite trading at a discount compared to its peers, DIRECTV has a one-year EPS growth rate of 39.85% while the industry peers one-year EPS growth rate is -32.14%. The company is currently experiencing robust subscriber growth at the DIRECTV Latin America unit and higher average revenue per user (ARPU) on U.S. penetration of advanced services. Given this information, revenues are expected to increase 9.2% to $29.7 billion in 2012 and 7.4% to $32B in 2013. Currently, EPS is at 3.47 and are expected to grow over 25% to $4.34 for fiscal year 2012. Direct competitor Comcast Corp (CMCSA) has an EPS of 1.5 and Dish Network Corp. (DISH) has an EPS of 3.26.
Moving Average Convergence/Divergence (MACD) indicates a bullish trend and its Up/Down volume pattern indicates that the stock is under accumulation. Also, the 10 and 21 day moving averages of $45.61 and $45.16 are clear indicators that the stock is moving in an upward direction. I feel this stock is truly undervalued and will see a substantial rise in price.
Kohl's Corporation (KSS) operates family-oriented department stores that sell apparel, footwear and accessories for women, men and children; soft home products, such as sheets and pillows, and housewares. The company's apparel and home fashions appeal to classic, modern classic and contemporary customers. The current market price is $49.44 with a one-year analyst price target of $56.11. This represents a 13.5% upside potential. Kohl's stock has very low volatility given its beta of .67 and high growth potential given its .82 PEG.
Merchandising improvements including new product launches and in-store improvements remain the key to better traffic trends and sales acceleration. Also, incremental marketing is expected to play a big role in future growth. Another key driving factor is the fact that gross margin expansion is expected to continue, given its reduced markdowns, higher initial markups, strength in private label merchandise, and better inventory. The company's ongoing focus on delivering new ideas, products, and value drove a 7.1% sales gain and a 40 basis point improvement in operating margin to 10.4%, in FY 11 and I believe this will continue into 2012. Based on Forward PEG, Kohl's currently trades at a 44% discount to its department store industry peers and a 20% discount based on its trailing P/E of 12.1. For fiscal year 2012, analysts estimate that Kohl's will earn $4.29 and grow 15% to $4.94 by fiscal year 2013.
Moving Average Convergence/Divergence (MACD) indicates a bullish trend and its Up/Down volume pattern indicates that the stock is under accumulation. This stock has a 4-Star S&P rating and recently has begun targeting online customers rather than brick and mortar. I feel this company has yet to see its historic highs and is a great buy at current levels.
Cirrus Logic, Inc. (CRUS) develops high-precision, analog and mixed-signal integrated circuits for a range of audio and energy markets. Building on its diverse analog mixed-signal portfolio, Cirrus Logic delivers products for consumer and commercial audio, automotive entertainment, and targeted industrial and energy-related applications. The current market price is $22.87 with a one-year analyst price target of $27.75. This represents an upside potential of 21.34%. Cirrus Logic appears to be extremely undervalued and relatively safe given its PEG of 0.85 and beta of 0.6.
Cirrus Logic's current quarter consensus estimate has increased over the past 90 days from 0.37 to 0.43, a gain of 14.7%. This improvement is significantly greater than its industry average. The company's gross margin has been higher than its industry average for each of the past five years- currently at 52.65%. The company's trailing P/E, forward P/E, and forward PEG multiples are all currently at or near their 5-year lows. Based on forward PEG, Cirrus Logic currently trades at a 66% discount to its semiconductors industry peers and based on trailing P/E, Cirrus Logic currently trades at a 63% discount. Also compared to its direct competitors, Cirrus Logic has an EPS of 2.42; while its direct competition STMicroelectronics NV (STM) has 0.98 and Texas Instruments Inc. (TXN) EPS is 2.40.
Moving Average Convergence/Divergence (MACD) indicates a bullish trend and its Up/Down volume pattern indicates that the stock is under accumulation. Also, the 10, 21, 50, and 200 day moving averages of $21.58, $27.18, $19.22, and $16.44, respectively represent a bullish trend. I agree with analyst Tore Svanberg that this stock is poised for a major rebound and is a great buy opportunity in the current environment.