Experienced investors know that it is part of the investing experience to watch stock prices fluctuate. However, there are times when the stock price moves just low enough to attract attention as a bargain. Especially when the company in question is generating strong profits. From this perspective we searched for mid cap stocks that appear to be undervalued and are generating solid earnings. The short list of stocks below serves as a helpful place to start your own evaluation.
The Price/Cash Flow ratio is a price-multiple valuation metric that also measures a firm'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
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.
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 Operating Profit Margin is a profitability ratio that measures the effectiveness of the company's operating efficiency. This metric allows investors to see how much profit is left after all variable costs are covered. If the company's margin is increasing over time this means that it's earning more per dollar of sales. Finding trends in the Operating Profit Margin helps investors identify companies that are improving profitability over time and managing the economic landscape better than competitors.
We first looked for mid cap stocks. We then screened for businesses that are trading at low price-multiple valuations (P/CFO<10)(forward P/E<10). We next screened for businesses that have strong profitability (1-year fiscal EPS Growth Rate>10%)(1-year operating margin>15%). We did not screen out any sectors.
Do you think these mid-cap stocks hold solid value? Use our list to help with your own analysis.
1) Huntington Bancshares Incorporated (HBAN)
|Industry||Regional - Midwest Banks|
|Price/Cash Flow Ratio||4.62|
|Forward Price/Earnings Ratio||9.95|
|Earnings Per Share Growth Rate||206.69%|
|Operating Profit Margin||28.15%|
Huntington Bancshares Incorporated operates as the holding company for The Huntington National Bank that provides commercial, small business, and consumer banking services. The company's Retail and Business Banking segment offers various financial products and services, including checking, savings, and money market accounts, certificates of deposit, consumer loans, and small business loans and leases; and investments, insurance, interest rate risk protection, foreign exchange hedging, and treasury management services to consumer and small business customers.
Its Regional and Commercial Banking segment provides commercial lending; depository and liquidity management products; treasury management solutions; equipment and technology leasing; international services; and capital markets services, such as interest rate risk protection, foreign exchange hedging and sales, trading of securities, mezzanine investment capabilities, and employee benefit programs to government, not-for-profit, health-care, and publicly traded entities. The company's Automobile Finance and Commercial Real Estate segment offers financing for the purchase of automobiles, and new and used vehicle inventory by automotive dealerships; and financing for land, buildings, and other commercial real estate owned or constructed by real estate developers, automobile dealerships, or other customers.
Its Wealth Advisors, Government Finance, and Home Lending segment provides investment management; investment servicing; custody, and corporate trust and retirement plan services; and administrative and operational support to fund to high net worth customers. It also offers online, mobile, and telephone banking services; and operates approximately 1,350 automated teller machines. As of July 24, 2012, the company had 680 branches located in Ohio, Michigan, Pennsylvania, Indiana, West Virginia, and Kentucky. Huntington Bancshares Incorporated was founded in 1866 and is headquartered in Columbus, Ohio.
2) Focus Media Holding Ltd. (FMCN)
|Price/Cash Flow Ratio||4.82|
|Forward Price/Earnings Ratio||8.39|
|Earnings Per Share Growth Rate||69.48%|
|Operating Profit Margin||31.68%|
Focus Media Holding Limited, a multi-platform digital media company, operates liquid crystal display (LCD) network using audiovisual digital displays in China. The company engages in selling out-of-home advertising time slots on its network of flat-panel digital advertising displays located in high traffic areas of commercial, residential, and public buildings, such as malls, hotels, and the lobbies of apartment buildings, as well as in-store network.
It provides advertising services on poster frames, on screens in movie theatres, and on traditional outdoor billboards. As of December 31, 2011, the company had a LCD display network of approximately 155,751 flat-panel digital displays in approximately 114 cities; in-store network of approximately 50,076 LCD displays in approximately 1,576 hypermarkets, 217 supermarkets, and 1,008 convenience stores; poster frame network of approximately 445,126 non-digital frames and LCD 1.0 picture frame devices, as well as leased screen time in approximately 316 movie theaters, including 2,190 screens. Focus Media Holding Limited is headquartered in Central, Hong Kong.
3) Torchmark Corp. (TMK)
|Price/Cash Flow Ratio||69.54|
|Forward Price/Earnings Ratio||9.10|
|Earnings Per Share Growth Rate||11.27%|
|Operating Profit Margin||21.36%|
Torchmark Corporation, an insurance holding company, provides individual life and supplemental health insurance, and annuities, to middle income households in the United States. Its life insurance products include traditional and interest sensitive whole-life insurance, term life insurance, and other life insurance; and supplemental limited-benefit health insurance products comprise cancer and accident plans, as well as Medicare Supplements plans and Medicare Part D prescription drug insurance. The company's annuity products consist of single-premium and flexible-premium deferred annuities. The company sells its products through direct mail, Internet, television, magazine, exclusive agents, and independent agents in the United States, Canada, and New Zealand. Torchmark Corporation was founded in 1900 and is headquartered in McKinney, Texas.
*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on 09/04/2012.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.