Do you consider yourself a contrarian investor, always looking for opportunities against the trend? For ideas on how to start your own contrarian search, we ran a screen.
We began by screening for stocks that appear undervalued relative to free cash flow, with P/FCF below 15, and undervalued relative to earnings growth, with PEG below 1.
We then screened for those with strong profitability compared to industry peers, with higher gross, operating, and pretax margins than their industry averages by at least 5% on each margin. This indicates that these companies are taking a greater percentage of their revenues as profits, and they also have stronger control over their cost structures.
Interactive Chart: Press Play to compare changes in market cap over the last two years for the stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.
We also created a price-weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 index over the last month. To access a complete analysis of this list's recent performance, click here.
Do you think these stocks should be trading higher? Use this list as a starting point for your own analysis.
List sorted by difference between pretax profit margin and industry average.
1. Discover Financial Services (DFS): Operates as a credit card issuer and electronic payment services company primarily in the United States. Market cap at $17.7B, most recent closing price at $32.97. PEG at 0.81. P/FCF at 5.73. TTM gross margin at 50.94% vs. industry average at 34.47%. TTM operating margin at 49.89% vs. industry average at 31.76%.TTM pretax margin at 44.05% vs. industry average at 25.91%.
2. Bridgepoint Education, Inc. (BPI): Provides postsecondary education services. Market cap at $1.06B, most recent closing price at $20.01. PEG at 0.55. P/FCF at 7.41. TTM gross margin at 73% vs. industry average at 52.04%. TTM operating margin at 26.28% vs. industry average at 19.36%.TTM pretax margin at 25.44% vs. industry average at 15.96%.
3. Nelnet Inc. (NNI): Focuses on providing fee-based processing services, and education-related products and services in the areas of loan financing, loan servicing, payment processing, and enrollment services. Market cap at $1.15B, most recent closing price at $24.10. PEG at 0.44. P/FCF at 4.1. TTM gross margin at 59.99% vs. industry average at 34.47%. TTM operating margin at 57.01% vs. industry average at 31.76%.TTM pretax margin at 32.25% vs. industry average at 25.91%.
*Profitability data sourced from Fidelity, all other data sourced from Finviz.