Are you Interested in gaining exposure to consumer companies that know how to earn serious money? Are you even more interested when those companies look undervalued, meaning that now could be the time to buy? If so, here are some ideas to get you started on your search.
The Price/Earnings ratio is one of the most commonly used price-multiple metrics. Often, EPS from the last four quarters is used to derive this number. A firm that has a high P/E ratio generally indicates that investors have high expectations of the firm relative to future earnings growth. By the opposite token, investors generally have lower expectations of a firm with a low P/E ratio. A firm that holds a P/E below 10 could be viewed as having "value investment" potential. One thing to remember is that EPS is an accounting measure that could be potentially manipulated. Thus the P/E is only as good as the quality of the earnings.
The forward P/E is a price multiple valuation metric, which is similar to the current P/E ratio, except that it uses the forecasted earnings instead. While this number might not be as accurate because it uses "forecasted" numbers, it does offer the benefit of illustrating analysts' expectations of a firm. If the market believes that earnings will grow moving forward, then the forward P/E should be lower than the current P/E. Financial Leverage, also known as the Equity Multiplier, illustrates how a firm is financing its assets. The lower the number the more a firm is financing its assets internally through stockholder equity. The higher this metric is the more the firm is relying on debt to finance its assets.
Return on Assets [ROA] illustrates how much a company is generating in earnings from its assets alone. This metric gives investors a picture of how profitable the company is relative to the assets in current possession. As well, it lets investors see how efficient and effective management is at generating earnings from the company's assets. While most management teams can probably make money by throwing money at an issue very few can make very large profits with little investment.
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.
We first looked for consumer stocks. We then looked for companies that are trading at a discount (P/E<10)(forward P/E<10). We then looked for businesses with strong profitability (ROA > 10%)(1-year fiscal EPS growth rate>10%). We did not screen out any market caps.
Do you think these stocks will go up in valuation? Use our list along with your own analysis.
1) Ford Motor Co. (F)
|Industry:||Auto Manufacturers - Major|
Ford Motor Co. has a Price/Earnings Ratio of 2.24, a Forward Price/Earnings Ratio of 6.16, a Return on Assets of 10.91%, and a Earnings Per Share Growth Rate of 197.00%. The short interest was 3.50% as of 06/10/2012. Ford Motor Company engages in the development, manufacture, distribution, and service of vehicles and related parts worldwide. The company operates through two sectors, Automotive and Financial Services. The automotive sector offers vehicles primarily under the Ford and Lincoln brand names. This sector markets cars, trucks, and parts through retail dealers in North America, and through distributors and dealers outside North America.
2) Navistar International Corporation (NAV)
|Industry:||Trucks & Other Vehicles|
Navistar International Corporation has a Price/Earnings Ratio of 1.40, a Forward Price/Earnings Ratio of 4.75, a Return on Assets of 15.71%, and a Earnings Per Share Growth Rate of 643.20%. The short interest was 4.20% as of 06/10/2012. Navistar International Corporation, through its subsidiaries, manufactures and sells commercial and military trucks, buses, diesel engines, recreational vehicles (RVs), and chassis, as well as provides service parts for trucks and trailers. It operates in four segments: Truck, Engine, Parts, and Financial Services. The Truck segment manufactures and distributes trucks and buses for the common carrier, private carrier, government/service, leasing, construction, energy/petroleum, military vehicles, and student and commercial transportation markets under the International and IC brands.
3) Cooper Tire & Rubber Co. (CTB)
|Industry:||Rubber & Plastics|
Cooper Tire & Rubber Co. has a Price/Earnings Ratio of 3.89, a Forward Price/Earnings Ratio of 6.55, a Return on Assets of 11.36%, and a Earnings Per Share Growth Rate of 116.66%. The short interest was 4.02% as of 06/10/2012. Cooper Tire & Rubber Company, together with its subsidiaries, manufactures and markets replacement tires in North America and internationally. It operates in two segments, North American Tire Operations and International Tire Operations. The North American Tire Operations segment produces and distributes passenger car and light truck tires, as well as tires for racing, medium trucks, and motorcycles to independent tire dealers, wholesale distributors, regional and national retail tire chains, and other large automotive product retail chains. This segment sells its products through three own retail stores.
4) KapStone Paper and Packaging Corporation (KS)
|Industry:||Paper & Paper Products|
KapStone Paper and Packaging Corporation has a Price/Earnings Ratio of 6.06, a Forward Price/Earnings Ratio of 7.87, a Return on Assets of 13.33%, and a Earnings Per Share Growth Rate of 88.58%. The short interest was 2.99% as of 06/10/2012. KapStone Paper and Packaging Corporation engages in the production and sale of unbleached kraft paper products primarily in the Americas, Europe, and Asia. The company offers containerboard to converters in the corrugated packaging industry, and to other converters for various end uses, including laminated tier sheets and wrapping material; and kraft paper to converters, who produce multiwall bags for agricultural products, pet food, cement, chemicals, grocery bags, and specialty conversion products, such as wrapping paper products, dunnage bags, and roll wraps. It also provides saturating kraft products to various industries, such as construction, electronics manufacturing, and furniture manufacturing; and unbleached folding carton board products to the general folding carton segment of paperboard packaging markets.
*Company profiles were sourced from Finviz. Financial data was sourced from Finviz and Yahoo Finance.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.