Geoffrey Ching's  Instablog

Buying stocks with low valuation multiples and high momentum is one of those simple strategies that produce strong profits. The two factors individually have a negative correlation and the combination creates a strategy with fewer periods of underperformance.

To be included below, I required a market cap of over $1 million and an average volume of over 1 hundred thousand to filter out stocks that are hard to trade. To find value stocks, I screened for stocks with the price to sales ratio and the price to book ratio below one. Lastly, I required that the most recent 12 and 6 month price performance was double that of the market as the momentum filter. This resulted in a few stocks that qualify as both value and momentum stocks and are liquid enough to trade.

TravelCenters of America LLC (TA)

TravelCenters of America LLC operates and franchises travel centers primarily along the United States interstate highway system. Its customers include trucking fleets and their drivers, independent truck drivers and motorists. As of December 31, 2009, the Company's business included 233 travel centers located in 41 states in the United States and the province of Ontario, Canada. (full description)

Price/Sales	0.02
Price/Book	0.47
52 Wk. Price Performance (%)	78.59
26 Wk. Price Performance (%)	103.39

 

Gramercy Capital Corp. (GKK)

Gramercy Capital Corp. (Gramercy) is an integrated commercial real estate finance and property investment company. Its property investment business, which operates under the name Gramercy Realty, focuses on the acquisition and management of commercial properties leased to regulated financial institutions and affiliated users throughout the United States. (full description)

Price/Sales	0.33
Price/Book	0.63
52 Wk. Price Performance (%)	49.82
26 Wk. Price Performance (%)	216.66

 

CIBER, Inc. (CBR)

CIBER, Inc. (CIBER) is system integration and information technology (IT) services consulting firm. CIBER provides IT system integration consulting and other IT services primarily to governmental agencies, and Fortune 1000 and middle market companies across industries. The Company provides its clients with a range of IT services, including custom and package software development, maintenance, implementation and integration. (full description)

Price/Sales	0.38
Price/Book	0.96
52 Wk. Price Performance (%)	44.00
26 Wk. Price Performance (%)	114.12

 

Petrobras Argentina SA ADR (PZE)

Petrobras Argentina SA (former Petrobras Energia SA) is an Argentina-based integrated company primarily engaged in the energy sector. The Company’s activities are structured in four segments: Oil and Gas Exploration and Production, including the acquisition, exploration and maintenance of oil and gas reserves; Refining and Distribution, focusing in the production of fuels and lubricants, asphalts and asphalts specialties; Petrochemicals, comprising the production of styrene, polystyrene, rubber, fertilizers and polypropylene, and Gas and Energy, providing gas distribution and electric energy generation and transmission.

Price/Sales	0.63
Price/Book	0.88
52 Wk. Price Performance (%)	35.46
26 Wk. Price Performance (%)	39.97

 

Northstar Realty Finance Corp. (NRF)

NorthStar Realty Finance Corp. is a real estate finance company, which focuses primarily on originating, investing in and managing commercial real estate debt, commercial real estate securities and net lease properties. The Company has invested in the areas of commercial real estate finance, which provides leverage to its real estate investment, utilize its capital markets knowledge, and capitalize on its ability to employ financing structures. (full description)

Price/Sales	0.87
Price/Book	0.41
52 Wk. Price Performance (%)	27.75
26 Wk. Price Performance (%)	49.41

 

Kindred Healthcare, Inc. (KND)

Kindred Healthcare, Inc. (Kindred), incorporated on March 27, 1998, is a healthcare services company that through its subsidiaries operates hospitals, nursing and rehabilitation centers and a contract rehabilitation services business across the United States. (full description)

Price/Sales	0.21
Price/Book	0.89
52 Wk. Price Performance (%)	20.96
26 Wk. Price Performance (%)	89.02

 

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The steel industry is hard to value because it trades at a lower valuation metric than the market as a whole. So, valuing a stock within the industry would seem to be even harder. We can, however, take a stab at it by looking at valuation metrics relative to those of other stocks within the same industry.

So to get a good idea of where Olympic Steel's (ZEUS) valuations are, below is a chart of it's P/S and those of ten other stocks in the steel industry. It's P/S, currently at 0.36, is at the low end of the range, though two other stocks have lower P/S ratios.



However, it is possible that Olympic Steel may deserve it's low valuation multiple. To see if this is the case, I look at the rating the VG stock rating system gives it.

The rating of 25.53 tells us that ZEUS's fundamentals are quite poor and that it may deserve an extremely low valuation multiple.

Continuing with our look at stock valuations relative to their industry rather than the market, today we are looking at valuations of the largest 5 cash advance and/or pawn shop stocks. Looking at valuations from a viewpoint within an industry rather than versus the market can improve returns and lower risks because some industries deserve higher or lower valuations.



The stock with the lowest P/S ratio is Advance America, Cash Advance Centers (AEA). This company has struggled with finding growth, with revenue and earnings growth being negative over the last few years.

In contrast to AEA, First Cash Financial Services (FCFS), the stock with the highest P/S, has had earnings growth rates of over 20%.

Our stock rating system, which takes into account many other indicators, likes EZCORP (EXPW) the best, giving it a rating of 86. On a scale between 0 and 100, that's not super, but it's still pretty good.