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PRO articles cover stocks that fly under most investors' radar screens.
Vectrus: Recent Spinoff With 40% Annualized Upside Over 1-3 Years
- Spun out from XLS. Began trading late September. Spinoff enhances VEC ability to execute and resulting forced selling creates opportunity in stock.
- High quality business: variable cost structure, high ROIC and ROA, sound management, competitive advantages created by agility and enduring customer relationships, and large TAM (less than 1% market share).
- Risks overstated. The customer concentration is not as bad as you'd think. Afghanistan revenue phase out has largely already occurred. Business resistant to sequestration.
- Scenario analysis indicates 40% annual upside over 1-3 years.
Trading At 3x What PE Deemed Reasonable Last Year; Avoid Burlington Stores
- Stock seems expensive on absolute basis at 15x EBIT, 20x FCF, and 25x EPS..
- In IPO last year, Bain and Burlington were willing to price as low at $14/share (37% of current price) at one point and Bain is now trying to dump shares.
- The apparel retail industry is unattractive, economically sensitive, capital intensive, competitive, and risky. Another economic downturn is probably not very far off and BURL will suffer due to excess leverage.
- Market expectations for further improvement in ROIC/growth/operating margin don't seem to be grounded by BURL's 20-year operating history.
- The company should still appreciate in intrinsic value over time and, due to this and other factors, is probably not a very good short. It is best to just avoid.
A Simple Regression Debunks A Simple Short Thesis; Buy Sturm, Ruger And Smith & Wesson
- Firearm demand is simply returning to a 15-year normal trend of growth from inflated post-Sandy Hook levels, NOT going to zero. Shorts are guilty of data point extrapolation here.
- With the above and the unlikely risk of complete prohibition of private gun ownership established, the firearm industry is actually quite attractive from an investing standpoint.
- SWHC and RGR are great companies- high ROIC and top/bottom line growth over long periods, strong and enduring brands, solid and unconventional management, engaged employees, and excellent products.
- Both stocks are cheap. There is a possibility of a short squeeze and/or PE takeout. RGR is slightly more attractive.
- Risk of complete gun prohibition is improbable, but there. Lack of immediate catalyst lends to a gradual position entry.
American Public Education: Best Of Breed And Misunderstood; Put This Baby Back In The Tub
- The major risks APEI faces, namely DOD funding cuts and regulatory/legal challenges plaguing most other FPEs, are significantly overstated by the market consensus.
- It is a high-quality enterprise, as evidenced by strong governance, management, high ROIC, recurring revenue, strong margins, a highly variable cost structure, and a sustainable business model.
- The business is struggling a bit, but the stock looks cheap in a base-case scenario, with optionality for outsized returns if revenue and margins improve within 5 years.
Strayer: Business Clearly Turning And Stock Remains Cheap
- The premise that Strayer will avoid most regulatory/legal damage that other FPEs are being hurt by seems to be holding true.
- The company's Q2 results offer clear evidence (starts, bad debt expense, RPS guidance) that the turnaround is picking up.
- The stock remains cheap when considering the likely ROIC, multiple, and EBIT margin reversion.
- I am not investing now due to the lack of share repurchases and chart which seems to indicate an imminent pullback.
Booz Allen Hamilton: Textbook Quality At A Discount
- This article serves as a more comprehensive follow up to my initial research - Booz Allen Hamilton: A Sustainable Excellent Business At A Discount.
- Concerns over the impact of US government budget cuts are overblown and much of the financial impact for BAH has already been realized.
- I believe the firm is of outstanding quality for a variety of reasons, including its durable competitive advantages from security clearances, longstanding client relationships, etc.
- Stock seems significantly discounted under 15x adjusted EPS and closer to 10x FCF.
- $1 special dividend should bolster stock over next month.
Capital Southwest: A BDC To Believe In?
- Became interested in the stock through various mentions in Martin Whitman's "Modern Security Analysis.".
- The company's investment strategy is unique as far as concentration and time horizon and generally aligns with my own. I did not find any qualitative deal-breakers and was generally impressed.
- Operating valuations do not apply here. NAV/share and growth in said metric matter. NAV is somewhat arbitrarily-determined but seems reasonably representative of fair value in this case.
- A return in stock price to NAV/share, NAV/share growth, and the small dividend make a 100% total return in 5-6 years reasonable, or 13.4% annually.
- Sympathize with the long case, but am not investing because some of the firm's holdings don't seem to be excellent businesses and upside is insufficient for me.
Panera: Opportunity In The Broken Growth Story?
- Panera looks like an obvious broken growth story from a distance and I've found that high quality businesses can occasionally be found at discounts to fair value in such situations.
- Positives: secular tailwinds, strong ROIC, under-utilized balance sheet, tight leash on franchisees, strong brand, strong historical performance, and timeliness.
- Negatives: retail is tough, operational headwinds, hidden debt, high quality competition, uncertainty, personal preference, and a pricey stock.
- Will continue to follow stock but have seen enough to rule out an investment for now.
Destination Maternity: An Optimal Destination For Value/Contrarian Investors?
- DEST seems to have a strong competitive position through its scale and brand portfolio and decent industry prospects as total US births resume a century long trend of growth.
- Company pays a nice dividend, is well-managed, and stock is exceptionally timely.
- However, the company faces high quality competition, operates in a tough retail industry, and is vulnerable to an e-commerce shift and a culture of maternity apparel exchange in the US.
- Stock trades at a low multiple of 14x 2014E EPS, but this implies growth in line with that the company has done historically.
- In addition to issues mentioned above, hidden debt in operating leases and purchase obligations and a large comps decline of 5.6% in Q2 keeps me from investing.
The Fresh Market: A Fresh Buy In A Heated Market
- Concerns over industry crowding have substance and company does not have strong competitive advantages, but market treatment seems overdone.
- Strong industry prospects with natural/organic grocery expected to continue to grow low double digits to 2020.
- Seasoned, talented, and invested management that has the right approach to growth.
- Hardly off 52-week low, below all moving averages, and at 13.2x no-growth FCF, stock seems attractive both fundamentally and technically.
- Intend to initiate concentrated position on day of publication.
Express Scripts: Just What The Doctor Ordered
- Great company because of economic moat, seasoned management, past and expected future performance, and the company's enviable industry prospects.
- Great price because it's a boring, confusing, and under-followed business and because the market misunderstands the company's underlying profitability by looking at net income instead of FCF.
- Now my largest position by far.
Liberty Media Sale Creates Decent Buying Opportunity In Barnes & Noble
- The Liberty Media sale was actually a good thing for B&N in context so the market reaction seems confounding and overdone.
- NOOK Media losses continue to mask the profitability of B&N's core ops.
- Data suggests the threat of e-books to B&N's core business is not as bad as most think.
- Both B&N's core business and NOOK Media have improved in the last few quarters.
- I see 43.9% upside from $17.16 per share to $24.69.
- Ruby Tuesday: The Next Great Turnaround Play
- Strayer Education: Definitive Improvements, But Is It Still Cheap?
- Corinthian Colleges: Tread Carefully
- ITT Education: Cheap, But Not Cheap Enough
- Career Education: Recent Disclosure Does Not Change The Turnaround Story
- Parke Bank: 12% ROE For A Steep Discount To Book
- Keating Capital: Discount To NAV Isn't Enough To Warrant Buying
- AmTrust Financial: Potential Double With Little Downside
- Corinthian Colleges: A Perpetual Mess
- Body Central: Time To Abandon Ship?
- Body Central: Multi-Bagger In The Making?
- Strayer: Rob Silberman Is An Incredible Asset
- Skullcandy Turnaround Story Is Music To My Ears
- Five Below: Look Out Below
- Exclusive Interview With GP Strategies' CEO Scott Greenberg
- Corinthian: Five-Bagger Or Value Trap?
- Market Overreaction Makes Body Central Attractive After Q2 Results
- ITT Educational Services: Why I'm A Bull Now And A Bear Later
- A Thinly-Traded Cyclical Turnaround With Further Upside
- Global Geophysical Services: A Compelling Small-Cap Turnaround Story