10 Companies Near 12-Month Lows With Low Debt and Reasonable Valuations

by: Lenny Grover

Following the dip on 4/18, we can use the Screener.co stock screener to find companies that are trading near their 12-month lows, but also have low debt and attractive valuation ratios. To do this, we can limit our scope to companies trading on U.S. exchanges and use the following criteria:

Price-closing or last bid
Price-12 month low * 1.05
Country Located In
Total Debt(NYSE:I)
Exchange Traded On
"Over The Counter"

We are looking for companies trading at within 5% of their 12-month low, have EV/EBITDA ratios less than 10, and have total debt that is less than twice their most recent annual EBITDA. In addition, we are excluding companies in the financial sector, in China, or not listed on a major exchange. We will also rank companies by annual revenue and only look at companies that have at least $1B of revenue and exclude ADRs. As of 4/19/2011, this screen yields the following 10 results (in order of descending annual revenue):

Company Name
General Motors Company
Best Buy Co., Inc.
Cisco Systems, Inc.
SYSCO Corporation
Campbell Soup Company
Barnes and Noble, Inc.
Urban Outfitters, Inc.
Tellabs, Inc.
Xyratex Ltd.
hhgregg, Inc.

General Motors is a U.S. auto manufacturer. It is trading at a mere 3.5x EV/EBITDA ratio and had over $135B in revenue in its most recent fiscal year. With a $10B preferred stock overhang on its most recent statement of equity and $36B of other non-debt liabilities, mostly pension obligations and other post-retirement benefits (legacy costs), perhaps the Enterprise Value metric is a bit misleading. If you are as afraid of the impact of long-term accrued future liabilities as I am, you will want to stay away from GM ... and government bonds!

We last wrote about Best Buy in our article from 4/5, and profiled them from hovering around their 12-month low at that time. It is still trading at a low EV/EBITDA ratio and pays a ~2% dividend. If you are not scared of retail stocks and believe in Best Buy's new focus on smaller-format, mobile-focused, stores, you might want to check out the company. A recent Seeking Alpha article was unconvinced of the value opportunity and I do not necessarily disagree.

We profiled Cisco as recently as 4/18. Our value screens are not the only ones it's coming up on, with a 6.1x EV/EBITDA ratio and a leading position in the networking equipment market. However, at least one reader who posted a comment was much more skeptical. It has continued to hit new lows as of 4/19 and short-term investors may be put off by its continuing plunge. However, I think the long-term opportunity here is compelling at current pricing and we will continue to watch the company.

Sysco and Campbell Soup also came up on our 4/5 screen. Sysco is now at an 8.4x EV/EBITDA ratio and yielding ~3.6% while Campbell Soup is at an 8.7x EV/EBITDA ratio and yielding ~3.4%. As a value investor, I remain less interested in the companies but their high yield might be more attractive to income-focused investors. Also, I am still somewhat put off by Campbell's balance sheet, but I tend to be overly conservative.

Barnes and Noble is trading at a seemingly attractive 4.5x EV/EBITDA ratio. However, the sale of paper books is destined to decline and the company's Nook e-reader has not been as well-received as tablet computing devices like the iPad or Amazon.com's (NASDAQ:AMZN) competing Kindle e-reader, both of which can serve the same purpose. Since e-reader "bookstores" are tied to the device, the success of the company depends on the distribution of its devices, which, for Barnes and Noble, has fallen behind its rivals. While it is sad to see the decline of the bookstore as a public space for intellectuals to gather and browse publishers' latest offerings, that decline seems inevitable. Unless and until Barnes and Noble can substantially improve its share of the tablet/eReader market (which seems unlikely), I am keeping my distance from the stock even as I enjoy the retail stores.

Urban Outfitters is an apparel company that is trading at an 8.8x EV/EBITDA ratio. With >17% revenue growth year-over-year, it is a growth company at a growth valuation even as it hovers near its 12-month low price. its PEG ratio is under 1, which growth investors may find attractive, but it is not my cup of tea.

Tellabs is a telecommunications products company that sells to carriers and is trading at an EV/EBITDA ratio of merely 2.7x and is yielding ~1.6%. The company has cash and short-term investments of over $1.3B and net tangible assets of $1.6B relative to a market cap of $1.8B, so it has a very strong balance sheet. Still, with $288M cash from operations in 2010, it is trading at a P/OCF ratio of less than 10. It just looks cheap and I will be watching the company.

Xyratex is a data storage products company that is trading at an EV/EBITDA ratio of only 1.6x. Looking over the recent filings, however, there is a recent weakness in its business that is likely to cause it to generate a loss in the next quarter. If you believe that the company can recover and resume growing (it grew revenue a whopping 85% YoY in 2010), then it is clearly a bargain. I will be watching closely.
hhgregg is a consumer electronics retailer that is trading at a 5.0x EV/EBITDA ratio. The company was downgraded from KeyBanc yesterday (4/18) from buy to hold. Like Best Buy, its valuation multiple seems low given the overall bearish outlook for the segment. I am less familiar with the company and reserving judgment as I learn more.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.