Regular readers of my columns know that I try to highlight stocks under $5 a share that I think are undervalued at least once a week. I have had a lot of success in my own portfolio with these selections and there are few better feelings in finding a underfollowed equity that becomes a home run. Here are two selections for this week that seem undervalued given their valuations and growth prospects.
Flow International Corporation (FLOW) is a small Pacific Northwest manufacturer that provides water jet cutting and surface preparing solutions.
4 reasons FLOW is too cheap at $3.50 a share:
- The stock is more than 50% below the median analyst price target of $5.50 a share. Price targets range from $4.50 to $6 a share.
- The company has more than doubled its operating cash flow over the past three years and has a solid balance sheet with net cash on its books.
- FLOW sells for under 10 times forward earnings, a huge discount to its five year average (32.5).
- Analysts expect between 7% to 10% revenue growth in FY2012 and FY2013 and stocks sports a five year projected PEG of under 1 (.65).
Casual Male Retail Group (CMRG) is a specialty retailer of big and tall men's apparel. It has over 400 stores in the United States, Canada, and Europe.
4 reasons CMRG has upside from $4.50 a share:
- I first highlighted this stock when it was selling at $3 a share back in June. CMRG is still selling substantially below the median analysts' price target of $7 a share.
- Revenue growth is expected to kick up to 7% to 8% in FY2013 after only 2% to 3% sales increases in FY2012. The five year projected PEG on CMRG is under 1 (.46).
- It has a solid balance sheet with some $10mm in net cash on its books. It has an 25% ROE.
- Insiders have been net buyers of the shares (around 100k net shares) over the previous six months.
Disclosure: I am long CMRG.