Mid-cap stocks provide a unique investment opportunity. After all, mid caps by definition have room to grow to join the ranks of their larger cap peers. Today, we screened for mid caps that have strong profits, but that also look undervalued from a price-multiple perspective. We think you'll find the list we came up with rather interesting.
Are you looking for mid-sized companies that still have room to grow? Do you prefer companies with strong profits? Looking for undervalued stocks? For ideas on how to start your search, we ran a screen you may find helpful.
The Net Margin is a profitability metric that illustrates, by percentage, how much of every dollar earned gets turned into a bottom line profit. This is just one of many profitability metrics used by investors and analysts to better understand what the company is being left with at the end of the day. Generally, a company that can expand its net profit margins over a period of time will see its stock price rise as well due to the trend of increasing profitability. Net Margin = Net Income/Total Revenue.
EPS growth (earnings per share growth) illustrates the growth of earnings per share over time. EPS growth rates help investors identify stocks that are increasing or decreasing in profitability. This profitability metric is generally a key driver in the price of the stock as it directly correlates to the profitability of the company as a whole.
The Price/Sales ratio is a price-multiple valuation metric used to help identify if a company is cheap by its twelve month trailing sales numbers. In the most basic terms, it let's an investor know how much the investment community is willing to pay for every dollars worth of sales. A company with a P/S ratio of one or lower would be viewed as cheap because investors are paying $1 or less for every dollars worth of a company's sales. On the other hand, a company is generally considered to be expensive when the P/S ratio is above three. These are general guidelines used by the investment community not hard rules to be clear. Price/Sales Ratio = Current Stock Price/Revenue (sales) per Share.
The Price/Cash Flow ratio is a price-multiple valuation metric that also measures a company's future financial health. An advantage of using cash flow is that it removes non-cash factors, which helps provide a clearer picture of how much money the firm is taking in from a valuation standpoint. Price/Cash Flow Ratio = Current Stock Price/Cash Flow Per Share.
We first looked for mid cap stocks. We then screened for businesses with strong profitability (Net Margin [TTM] >10%)(1-year fiscal EPS growth rate>10%). We then looked for companies that are trading at a discount (P/S<1)(P/CFO<10). We did not screen out any sectors.
Do you think these mid-cap stocks have strong enough fundamentals to move higher? Use this list as a starting-off point for your own analysis.
1) Hertz Global Holdings, Inc. (NYSE:HTZ)
|Industry:||Rental & Leasing Services|
Hertz Global Holdings, Inc. has a Net Margin of 21.35%, an Earnings Per Share Growth Rate of 435.19%, a Price/Sales Ratio of 0.50, and a Price/Cash Flow Ratio of 8.83. The short interest was 7.37% as of 06/06/2012. Hertz Global Holdings, Inc., through its subsidiaries, engages in the car and equipment rental businesses worldwide. The company operates in two segments, Car Rental and Equipment Rental. The Car Rental segment owns and rents various car models on an hourly, daily, weekend, weekly, monthly, or multi-month basis.
2) Peabody Energy Corp. (BTU)
|Industry:||Industrial Metals & Minerals|
Peabody Energy Corp. has a Net Margin of 12.25%, an Earnings Per Share Growth Rate of 28.04%, a Price/Sales Ratio of 0.79, and a Price/Cash Flow Ratio of 6.89. The short interest was 2.60% as of 06/06/2012. Peabody Energy Corporation engages in the mining of coal. It mines, prepares, and sells thermal coal to electric utilities and metallurgical coal to industrial customers. The company owns interests in 30 coal mining operations located in the United States and Australia, as well as owns joint venture interest in a Venezuela mine. It is also involved in marketing, brokering, and trading coal.
3) MGM Resorts International (NYSE:MGM)
|Industry:||Resorts & Casinos|
MGM Resorts International has a Net Margin of 36.20%, an Earnings Per Share Growth Rate of 274.02%, a Price/Sales Ratio of 0.64, and a Price/Cash Flow Ratio of 3.36. The short interest was 8.84% as of 06/06/2012. MGM Resorts International, through its subsidiaries, owns and operates casino resorts. Its casino resorts offer gaming, hotel, convention, dining, entertainment, retail, and other resort amenities. The company also owns and operates Shadow Creek golf course in North Las Vegas; Fallen Oak golf course in Saucier, Mississippi; and the Primm Valley golf club at the California state line.
4) Icahn Enterprises, L.P. (NYSE:IEP)
Icahn Enterprises, L.P. has a Net Margin of 11.07%, an Earnings Per Share Growth Rate of 258.38%, a Price/Sales Ratio of 0.35, and a Price/Cash Flow Ratio of 0.71. The short interest was 0.02% as of 06/06/2012. Icahn Enterprises L.P., through its subsidiaries, engages in investment management, automotive, gaming, rail-car, food packaging, metals, real estate, and home fashion businesses in the United States and internationally. The Investment Management segment provides investment advisory, and administrative and back office services to the private funds. The Automotive segment offers power-train energy, power-train sealing and bearings, and vehicle safety and protection products, as well as aftermarket products.
*Company profiles were sourced from Finviz. Financial data was sourced from Yahoo Finance.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.