CNN Money's Fear & Greed Index shows there's extreme fear in the stock market. As a contrarian indicator, it signals you must be greedy when the crowd is fearful and vice versa. Investors should welcome the bargain buying opportunity left by the September - October sell-off.
Many excellent companies are trading at bargain prices on top of having good prospects for sales and earnings growth owing to backlogs, new products or new store openings. In addition, they are buying back their own shares. Share repurchases support share prices by creating demand, while boosting earnings per share as profits are divided between a fewer number of shares. Take a look at five companies that meet all of these highly-prized criteria.
1. GE (NYSE:GE) is trading at slightly lower price-to-earnings and price-to-book value ratio compared with both its sector and the S&P 500 while paying an attractive 3.6% dividend yield that's larger than both its peers' and the market. It has about $11.6 billion remaining in its share buyback program.
GE stands to benefit from an improving credit market and global demand for infrastructure development. GE makes everything from light bulbs to home appliances to jet engines and power-generating equipment. The conglomerate's backlog climbed to $246 billion at the end of the second quarter from $223 billion in year-ago period owing to strong growth in its equipment and service businesses. In June, GE made a $16.9 billion deal to acquire the power and grid division of Alstom SA, which is expected to close at the end of this year.
GE is the second-largest stock holding in hedge fund titan Ray Dalio's portfolio behind Apple (NASDAQ:AAPL). The Bridgewater Associates founder boosted his stake in GE more than 800% in the second quarter, according to GuruFocus.com. Warren Buffett and George Soros added to their GE positions in the fourth quarter while David Dreman added in the first quarter, according to GuruFocus.com.
2. Nutritional supplements retailer GNC (GNC) announced in mid-August that it plans to buy back $500 million of its shares over the next two years. GNC Chairman Michael Hines, bought 30,000 shares on August 18, increasing his stake to 37,118 shares. Just two weeks before that CEO Michael Archbold bought 175,000 shares. Insiders sell for many reasons but buy when they believe shares are undervalued and that the company's outlook is improving.
GNC trades at only 13.6 times earnings versus 20 for its sector and 18 for the S&P 500. In the first half of this year, it opened 179 new stores in the U.S. and overseas including 17 store-within-a store locations at Rite Aid. In addition, it acquired nine stores in Ireland in April. Earnings and sales are expected to be flat this year compared with 2013. But 2015 earnings are expected to rise 12% with 5% sales growth, according to analysts polled by Thomson Reuters Knowledge. It also pays a 1.7% dividend.
3. Las Vegas Sands (LVS) kicked off a $2 billion buyback program in June 2013 and had a target of buying back at least $75 million worth of shares monthly. In the second quarter, it returned $320 million to its investors, far surpassing its target. The casino giant has spent $1.7 billion on share repurchases under its current buyback program so far. It also raised its quarterly 43% year over year to $0.50 a share for a current yield of nearly 3%.
The stock currently trades at a price-to-earnings ratio of 20 times vs. its five-year average of 30. The company is projected to grow 2014 sales nearly 13% over last year and earnings by 28%, according to Thomson Reuters Knowledge.
4. Target (NYSE:TGT)'s current $5 billion buyback program started in early 2012. In the second quarter, it repurchased nearly $34 million worth of shares. It also increased its dividend 18% over last year. It pays a dividend yield of 3% compared with 2% for the S&P 500. Its price-to-sales ratio of 0.5 is far below the S&P's 1.8. Owing to expenses related to the security breach, 2014 earnings are expected to sink 26% over last year while revenue dips 1%, according to Thomson Reuters Knowledge.
But the market hasn't fully priced in growth from new store openings and new product lines. The Minneapolis-based retail chain opened three new stores in Canada in August after opening a 124 stores and three distribution centers in our neighbor to the north last year. In late July, the company opened its first new TargetExpress, which is about one-sixth the size of its regular stores, in the Twin Cities. Some 35,000 new products were introduced this fall. It's selling exclusive products from Sam & Libby, Method, Seventh Generation, designer Chris March and other brands.
5. Chicago Bridge & Iron (NYSE:CBI) repurchased $67 million of its shares in the first half of the year. It announced in May that it planned to buy back 10.8 million shares, about 10% of its float, through the end of October 2015.
It's trading at 8 times earnings versus 18 for its sector. A price-to-sales ratio of 0.4 is a bargain compared to S&P 500, which is trading at 1.8 times sales. It also pays a 0.54% dividend.
2014 earnings are expected to grow nearly 22% year on year as sales jump 18%, according to Thomson Reuters Knowledge. The developer of energy infrastructure reported $4.2 billion in contract awards in the second quarter -- more than double the $1.8 billion in contracts last year. The backlog amounts to 2.5 times current revenue. It has a good chance of winning more awards from liquefied natural gas, chemical production, power plants and other infrastructure projects, D.A. Davidson & Co. wrote in a report.
Disclosure: The author is long TGT, CBI, GE, GNC, LVS.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.