It's no secret that many retail investors have been fleeing equities for bonds in recent times. In light of bad jobs reports and a constant stream of dramatic headlines from Europe, investors want a "safe haven" - something they can count on.
Unfortunately, this mass exodus has thrown the proverbial baby out with the bathwater. The broad disinterest in equities has resulted in a sell-off of some very solid companies. For investors still in the game, this means that companies with a solid track record and strong growth prospects can often be picked up on the cheap.
An example of this is Valero Energy (NYSE:VLO), an independent petroleum refining company. The stock's price has been quite volatile of late, but at current valuations, it may be worth a look for several reasons.
VLO data by YCharts
Factor 1: Valuation and Growth
Over the past year, Valero's P/E ratio has undergone significant compression. At 8.7, it's currently well below the oil industry average of 15.13. Valero's earnings have improved dramatically over the past year, but the stock price hasn't kept up, and thus the P/E has reached dirt cheap levels.
VLO PE Ratio data by YCharts
Furthermore, Valero's Price-To-Sales is significantly below that of its peers.
VLO Price / Sales Ratio data by YCharts
Valero's PEG ratio of 0.8 is below one, indicating that future earnings growth is not fully priced into the stock. (For comparison, the oil industry average PEG is 1.42).
Valero has also shown good growth. TTM year-on-year EPS growth is 38.97%, and projected 3-5 yr EPS growth is 10.55%.
Finally, share price has plunged in comparison to book value.
VLO Book Value per Share data by YCharts
Factor 2: Dividend
While Valero cut its dividend in a rough patch 2010, it's back to previous levels. The dividend yield is currently 2.56%, and Valero's history of increasing the dividend suggests that investors might experience significantly higher yield-on-cost in the future.
VLO Dividend data by YCharts
Factor 3: Consensus Analyst Opinion
Analysts are bullish on Valero. The stock receives a "Bullish" 9/10 Starmine Equity Summary Score. (The Starmine Equity Summary Score is an accuracy-weighted sentiment derived from the ratings of independent research providers. It uses the past relative accuracy of the providers in determining the emphasis placed on any individual opinion.) Ford Equity Research, GMI, and Standard & Poor's all have "Buy" recommendations on Valero, while Thomas White and EVA Dimensions have "Outperform" recommendations.
Thomas White International projects long-term growth of 11% for Valero and notes that the recent volatility in stock price is more a result of market forces than weak fundamentals:
Valero's interim price direction and volatility is only partially the result of the company's fundamentals. The strongest external influence is its position in the energy sector and the refineries & l.p.'s industry. This area is noted for its average sensitivity to the business cycle and for the moderate volatility of its stocks... its overall financial quality is above average versus other firms.
Factor 4: Balance Sheet
With a debt-to-equity ratio of 0.47, Valero is not excessively leveraged.
VLO Debt to Equity Ratio data by YCharts
Valero also has $2.82 in cash per share and a history of increasing cash holdings.
VLO Cash and Equivalents data by YCharts
Valero is trading at the low end of the P/E range, suggesting a mean reversion could occur in the near future. With a history of increasing dividends and good growth prospects in the future, Valero might be a good choice for value-conscious investors at current valuations.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Disclaimer: I am an individual investor, not a licensed investment advisor or broker dealer. Investors are cautioned to perform their own due diligence. All information contained within this report is presented as-is and has been derived from public sources & management. Always contact a financial professional before making any major financial decisions. All investments have an inherent degree of risk. The future is uncertain, and actual results may be materially different from those expected. Past performance is no guarantee of future results. All views expressed herein are my own, and cannot be interpreted as the views of my employer(s) or any organizations I am affiliated with. Presentation of information does not necessarily constitute a recommendation to buy or sell. Never make any investment without conducting your own research and reading multiple points of view.