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Do you consider yourself a value investor, always looking for potentially undervalued stocks? For a closer look at stocks that may be trading below their fair value, we ran a screen.

We began by screening for stocks that appear undervalued relative to earnings growth, with PEG below 1, and relative to free cash flow, with P/FCF below 15.

Then to analyze these companies' profitability, we ran DuPont analysis on the names. DuPont analyzes profitability by breaking up return on equity (net income/equity) into three components:

ROE

= (Net Profit/Equity)

= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)

= (Net Profit margin)*(Asset turnover)*(Leverage ratio)

Because increases in net margin and asset turnover are considered good things, DuPont focuses on companies with these positive characteristics: Increasing ROE along with,

•Decreasing leverage, (i.e. decreasing Asset/Equity ratio)

•Improving asset use efficiency (i.e. increasing Sales/Assets ratio) and improving net profit margin (i.e. increasing Net Income/Sales ratio)

Those companies that pass DuPont are seeing positive trends in the sources of their increasing profitability, which adds further weight to the idea that the names are profitable.

(click to enlarge)

Do you think these companies have strong profitability? Use this list as a starting point for your own analysis.

List sorted by PEG.

1. HCA Holdings, Inc. (NYSE:HCA): Offers health care services in the United States. Market cap at $11.44B, most recent closing price at $25.80. PEG at 0.43. P/FCF at 10. MRQ net profit margin at 5.87% vs. 2.98% y/y. MRQ sales/assets at 0.339 vs. 0.338 y/y. MRQ assets/equity at -3.151 vs. -2.666 y/y.

2. TPC Group Inc (NASDAQ:TPCG): Produces specialized lines of chemical products to chemical and petroleum based companies worldwide. Market cap at $529.75M, most recent closing price at $33.51. PEG at 0.52. P/FCF at 7.98. MRQ net profit margin at 2.97% vs. 2.05% y/y. MRQ sales/assets at 0.571 vs. 0.565 y/y. MRQ assets/equity at 3.454 vs. 3.641 y/y.

3. Universal Health Services Inc. (NYSE:UHS): Operates acute care hospitals, behavioral health centers, surgical hospitals, ambulatory surgery centers, and radiation oncology centers. Market cap at $3.71B, most recent closing price at $38.12. PEG at 0.58. P/FCF at 13.1. MRQ net profit margin at 7.05% vs. 6.5% y/y. MRQ sales/assets at 0.235 vs. 0.231 y/y. MRQ assets/equity at 3.207 vs. 3.635 y/y.

4. Community Health Systems, Inc. (NYSE:CYH): Provides healthcare services through the operation of hospitals in the United States. Market cap at $1.99B, most recent closing price at $21.41. PEG at 0.62. P/FCF at 4.38. MRQ net profit margin at 1.99% vs. 1.83% y/y. MRQ sales/assets at 0.239 vs. 0.228 y/y. MRQ assets/equity at 6.363 vs. 6.368 y/y.

5. CF Industries Holdings, Inc. (NYSE:CF): Manufactures and distributes nitrogen and phosphate fertilizer products, serving agricultural and industrial customers worldwide. Market cap at $10.6B, most recent closing price at $161.15. PEG at 0.7. P/FCF at 6.36. MRQ net profit margin at 24.12% vs. 24.02% y/y. MRQ sales/assets at 0.159 vs. 0.128 y/y. MRQ assets/equity at 1.95 vs. 2.106 y/y.

6. AFLAC Inc. (NYSE:AFL): Provides supplemental health and life insurance. Market cap at $18.76B, most recent closing price at $39.23. PEG at 0.72. P/FCF at 1.61. MRQ net profit margin at 12.58% vs. 7.6% y/y. MRQ sales/assets at 0.054 vs. 0.051 y/y. MRQ assets/equity at 8.47 vs. 9.548 y/y.

7. Helix Energy Solutions Group, Inc. (NYSE:HLX): Operates as an offshore energy company. Market cap at $1.88B, most recent closing price at $17.45. PEG at 0.93. P/FCF at 5.73. MRQ net profit margin at 16.12% vs. 8.87% y/y. MRQ sales/assets at 0.111 vs. 0.082 y/y. MRQ assets/equity at 2.44 vs. 2.793 y/y.

8. Torchmark Corp. (NYSE:TMK): Provides individual life and supplemental health insurance products, and annuities to middle income households. Market cap at $4.56B, most recent closing price at $45.50. PEG at 0.95. P/FCF at 5.77. MRQ net profit margin at 13.22% vs. 12.08% y/y. MRQ sales/assets at 0.054 vs. 0.053 y/y. MRQ assets/equity at 4.365 vs. 4.378 y/y.

9. Shuffle Master Inc. (NASDAQ:SHFL): Develops, manufactures, and markets technology and entertainment-based products for the gaming industry worldwide. Market cap at $839.64M, most recent closing price at $15.03. PEG at 0.99. P/FCF at 13.39. MRQ net profit margin at 13.65% vs. 10.96% y/y. MRQ sales/assets at 0.178 vs. 0.139 y/y. MRQ assets/equity at 1.318 vs. 1.62 y/y.

10. Standex International Corp. (NYSE:SXI): Operates as a diversified manufacturing company in the United States and internationally. Market cap at $514.01M, most recent closing price at $40.49. PEG at 0.99. P/FCF at 12.73. MRQ net profit margin at 6.05% vs. 3.79% y/y. MRQ sales/assets at 0.331 vs. 0.281 y/y. MRQ assets/equity at 1.768 vs. 2.14 y/y.

*Accounting data sourced from Google Finance, all other data sourced from Finviz.

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

Source: 10 Highly Undervalued Stocks With Strong Sources Of Profitability