So all year I have been overly concerned with the economy and have not focused enough on good stock picking which weathers all market environments. I admit it, apologize for it, and am trying to move on with my life…
So, as a way to repent for my sins of caution in late 2010, I am going to disclose a brief list of potentially undervalued issues for your review, and if you are so inclined to purchase said equity for 2011, it is your own decision to invest and you should take complete credit for any of the money you earn.
In this way, I can make you some money as payback for my caution and without being blamed for a particular company’s decision to commit fraud or blow through investor cash partying on the shareholder dime – you have to research stocks constantly to make any money, and likewise it takes some guts to hold your best stocks through thick and thin, while getting out of the companies that eventually destroy shareholder capital (whether the management team was drunk or sober).
The following list contains names of statistically undervalued equities, but some names are turnarounds and riskier investments or have potentially drunken management teams to keep an eye on (after all, 1 in 10 Americans have a problem with alcohol; this means that management at two of these companies should statistically be drunk right now (although I have to adjust for the Chinese solar firms):
- AHL – Aspen Insurance Holdings is a reinsurance firm which trades at just 64% of tangible book value. AHL has less deferred policy acquisition assets then NWLI and has a higher ROE. Although the earnings statements for AHL are “lumpy” the company is statistically cheap.
- GLRE – Greenlight RE trades at 7X analyst projected earnings (although it is basically a way for the Average Joe like me to invest with David Einhorn) and trades for around 1.5X assets… Although not a bargain from a book value perspective, Greenlight Capital should produce a 10% return on the 937 million investment portfolio of GLRE which is a far better ROE than AHL or NWLI, making the common stock of GLRE statistically cheap.
- JASO – JA Solar Holdings is a Chinese solar company with a market leading position in the industry. Although understanding Chinese companies is much more difficult than US investing, the rewards could far outweigh the risk. At 5X projected 2011 earnings, JASO is statistically cheap. As oil prices rise ever higher, the solar industry should advance worldwide to cushion the blow.
- TSL – Another bellwether Chinese solar company with strong growth at a bit higher PE ratio.
- JKS – Although a younger firm as far as sales goes, JKS has exhibited strong growth and is trading at just 5X forward earnings estimates, making the stock statistically cheap.
- INTC –INTC trades at just 8X my estimate of “owner’s earnings” and cash flows and a significant discount to its five year projected growth rate. The company pays a nice dividend and could benefit from the ongoing revolution in cloud computing and the “new” tech boom. Covered calls are an option here.
- MSFT – Mister Softy is dirt cheap on owner earnings as well, but here I am personally in covered calls on MSFT as the monthly income with the dividend is more than enough compensation for any saturation or other risks.
- RIMM – The maker of the Blackberry, Research in Motion has grown sales and earnings by an impressive 40% over the past year Q over Q while trading at a 9.7X projected 2011 earnings estimate. If RIMM can surprise analysts to the upside this year, and I think they will, the stock could easily trade higher.
- HRS – Harris Corp. is a Magic Formula oil name that trades at just 10X earnings with a huge ROE and strong cash flows.
- GILD – Another Magic Formula name that boasts a 54% ROE, a 9.4X forward PE ratio, and YOY sales growth of 7% or so. The company trades at a .7 projected PEG ratio making GILD statistically cheap.
- GNK – Although a shipping company with the BDI index hitting fresh lows seems very risky, and a Greek shipping company even riskier, GNK’s 65% discount to book value may more than make up for these risks over the long term. GNK boasts a 5X forward PE with a price to tangible book at .45X making it cheap from a statistical perspective.
- SNX – Synnex Corporation trades at a remarkable 8.45X PE ratio and at a small 28% premium to tangible book value, making the company statistically cheap with a 10X trailing PE and a 30% one year growth rate. Another cheap “tech” stock that I am trying my best to understand.
- IM – Ingram Micro trades at 1X tangible book value and a low 9.04X forward PE ratio. Much like SNX, IM has a 10.3 TTM PE ratio with a .7 PEG ratio and 52% Q over Q earnings growth. ROE of 10% makes the cut for being a statistically cheap name worth considering for a long term investment.
- BG – Bunge is a name I have been recommending for a long time now, but the stock is still cheap with a 5X PE ratio (12 times forward earnings) while trading at 94% of book value. BG is a major conglomerate in the food and farming business and should benefit from higher commodity prices.
- VALE – This Brazilian miner trades at a low 8X forward earnings estimate and a discount to the assets in the ground of their major properties. With the addition of Bunge’s Potash business and continued demand for commodities, VALE should be a long term winner for shareholders.
- HPQ – Believe the analysts and this stock is a steal, trading at just 8X earnings. HPQ is another “old tech” business, so make sure that you don’t over-concentrate your investments in “buggy-whip” makers if things radically change for these firms (which I doubt).
- PEP – Trading at just 12.5X operating cash flow, Pepsi could be considered cheap because the company has a strong moat and durable competitive advantage. Pepsi will likely be around in 30 years, which should provide the stock with a premium market multiple, which right now it does not command.
- LEE – Lee Enterprises could come back. How far? Try from $2.88 to $20 per share… Lee trades at 2X earnings and is paying down their onerous debt as fast as it can. LEE has successfully transitioned a good part of its business online, which may put the value of the company into a new playing field as it can compete with the Groupons and Travelzoos for ad dollars and market value.
- UNTD – A play on the internet eyeball phenomenon…. If Facebook is worth 50 billion, what is Classmates.com worth? Granted it’s not cool, but surely at 7.7X forward earnings, the company is a better deal for shareholders.
- ELNK – This is the same thing as UNTD. The internet is the “hot” area right now and ELNK is super old school, but also super cheap statistically trading at a 3/6X trailing PE (13X forward earnings)… a play on the web that isn’t Salesforce.com (CRM) at 270X earnings and makes the Magic Formula Screen.
And that sums it up for now. I have done my good deed for the day, likely making you wealthy readers wealthier, and have also gathered my ideas into one place so that the ease of referencing them has greatly increased! So, maybe investing isn’t a zero sum game after all and stocks aren’t that expensive. However, time will tell if being overly cautious here is warranted or not. It is certain that credit and lending are central to our economy and that inflation, oil shocks, credit contractions, debt concerns and currency crises (etc.) should provide an ample wall of worry going forward, and that many stocks will go higher over time, regardless of the latest economic catastrophe. These 20 cheap stocks give me reason to be cheerful despite the nasty headlines and greedy dealings of the day…
Don’t fight the tape, but be ready to play defense when the time for capital preservation is at hand (think "end of POMO"). So far my 1310 target seems likely in the coming week, but overall the market is more expensive than many would like to admit, including me. So until the music stops, I will be wearing my “Fifty Cent headphones” to the noise of the overall market and will focus on undervalued names. Follow me on Twitter here.
Disclosure: I am long AHL, GNK, GILD, RIMM, MSFT, INTC, SNX, IM, VALE, BG, JASO, JNJ, GILD, PEP, NWLI, and all others mentioned