The first pick is a company that many people may never have heard of, even though they manufacture products that we use everyday. The company is Genlyte Group Incorporated (GLYT) and the industry is lighting. The company operates in a historically recession-proof industry and has recently come under pressure—falling 25% from its 52-week high of $87.80.
The company is trading at a forward price to earnings ratio of 12.19 and has a projected five-year growth rate of 16%. Genlyte Group has averaged a P/E ratio of 15 over the past 5 years. It appears that the stock has caught support at the $66 level and is currently trading at $67.16. My 1 year target price for GLYT is $82.65 [Forward EPS of $5.51 times the average P/E ratio of 15], which represents a 23% return from the current level.
Next, allow me to examine the retail sector. I often wonder why would anyone want to be invested in a company involved in this industry? Consumers are dealing with high gas prices, weather-related incidents, and a driving up of credit. Despite all the negative aspects of this sector, there is one company that has caught my attention, and it appears to be on the fast track to growth in handling these situations. In fact, if any of the above concerns improve, investors will see a nice jump in the stock price.
The company I am describing is a department store called The Bon-Ton (BONT). A recent article that appeared in Stores magazine announced that The Bon-Ton was the #1 fastest growing retailer in their annual “Hot 100” list, which is a list of companies with the fastest-growing annual sales.
A slight problem with the disbursement of earnings with BONT is that they have negative earnings three quarters of the year with a strong fourth quarter that effectively puts BONT into overall positive earnings for the year. They have since made a few acquisitions to help evenly disburse the earnings, but it is projected that this trend will continue. They are trading at a forward price to earnings ratio of 5.5, which—by itself—appears abnormally low. However, by looking at the historical high/low P/E ratios over the past 10 years, one will notice that this is within the range, and it is not unusual to find this company trading at this low of a P/E ratio.
The company is projected to grow at 14.5% per annum over the next five years, which, when combined with a forward P/E ratio of 5.5, gives the investor a value and growth stock. The company is highly leveraged, which is the primary reason for the fall from over $50 a share to a price of a little over $21 in less than two months. This is more of a speculative play than Genlyte, but I am a buyer at this level, and from past filings, George Soros is an investor who believes as well.
What’s in your wallet? That’s right, it’s Capital One Financial (COF) that I am recommending as an addition to any portfolio. This company has been punished over the past couple months for diversifying away from its core credit card business into a more Citigroup-style company. They made two strategic acquisitions: Hibernia and North Folk Bankcorp. Subsequently, the market has scolded them because of the timing of those purchases.
The sub-prime fear in the market has placed a cloud over the real growth experienced within this company. Capital One Financial is trading at a forward P/E ratio of 8.48 and is currently projected to grow at approximately 11.50% per annum over the next five years. The company has a stable management, which has been in place since its IPO in 1994, and has rewarded shareholders with a total return of 1400%.
As of Wednesday, August 8, 2007, Capital One Financial has announced the acquisition of NetSpend, a marketer of prepaid debit cards; this acquisition is yet another example of diversification within in the company and an additional potential source of growth. The company has been beaten down to an irrational level and it is time for investors to act in order to give this company the price it deserves.
As I pointed out in my post about the fire sale prices of some stocks, the energy industry is full of bargains lately, especially with the continued growth of the area. Lufkin Industries (LUFK) is one of those companies that stand to profit from the continued exploration of natural resources by providing those companies with the equipment.
The company currently has no debt on the books and recently announced a $30 million share buyback. The company has a forward price to earnings ratio of 9.76, which is at the lower end of its historical price to earnings ratio range. Furthermore, the company is projected to grow at 19% per year over the next five years. Along with the share buyback, the company has recently announced a 9.5% increase to its dividend, which currently yields 1.70%. If the price of oil continues to hover at its current level, more firms will enter into the exploration of natural resources, thus driving the demand for equipment that Lufkin Industries supply.
The companies that were mentioned in this article all exhibit the characteristics of being out-of-favor to Joe Investor but have a reasonable growth rate and a low price to earnings ratio. The key to smart investing in today’s market is trying to find companies that will give you the best bang for your buck.
These companies have what it takes to give an investor’s portfolio a boost from improving fundamentals, especially those dealing with the macroeconomic environment. So, sit back and enjoy a return to rationality when these star stocks start to make their rise to fame again.
BONT / COF / GLYT / LUFK 1-year chart