By Wilson Wong
We stumbled upon five stocks currently trading at under $7, and took a look at each one to see if the market is accurately valuing these companies. As always, use the information below as a starting point for your own research.
GMX Resources Inc. (GMXR) is an independent oil and natural gas exploration and production company based out of East Texas. GMX focuses most of its drilling in the Haynesville/Bossier Shale and Cotton Valley Sands in different counties in East Texas, but has also been involved in oil exploration in the Niobrara formation in Wyoming and the Bakken formation in North Dakota. On February 15, the stock fell as low as $4.20, but it had recovered to $4.66 by the time of writing. It hit a high of $6.35 on April 4.
On May 9, the company reported an increase of 38% in natural gas and oil sales during its first quarter in 2011 compared to the first quarter of 2010. This increase in sales was caused by a 22% increase in oil prices and an 89% increase in production. We recommend buying shares of GMX at the current price because company shares trade below our fair value estimate. Its PE, book value, and price/cash flow metrics are all lower than its historical five-year average.
The company had to remove substantial proven undeveloped reserves from its books on the Cotton Valley due to its switch to the Haynesville Shale below it, cratering the share price. We think a buyout would come in around $700 million on the low end or $12 per share, given GMX acreage and infrastructure at current gas prices. Devon (DVN), legacy XTO (XOM), Apache (APA) and EOG Resources (EOG) all have acreage in East Texas and are looking for opportunistic acquisitions. GMXR acreage, with no impending lease expirations and the ability to place well heads near pipelines due to its Cotton Valley experience, is a potential target.
Sprint Nextel Corporation (S) is a major telecommunications company based in Kansas. It is one of the four big cell phone companies in the United States and is trading at $4.81 at the time of writing. Although Sprint has had negative earnings in the previous several years, cash flow remains positive, with $1.61 flow per share in 2010.
On April 22, Sprint announced that it opposed AT&T’s (NYSE:T) proposed $39 billion acquisition of T-Mobile, saying that it would have a negative impact on the competition within the US communication market. The only advantage Sprint could take out of the deal is that it becomes the only other major alternative to the big two, and the primary provider of value pricing-plans. However, that strategy would leave it at a huge cost disadvantage compared to AT&T and Verizon (NYSE:VZ), and may not be sustainable in the long run. Shares also hit a 52-week high of $5.37 on May 10, which leads some analysts to suggest that the telecommunications giant might make a comeback.
Sprint also reported a revenue increase of about 3% for the first quarter of 2011 compared to last year’s quarter. We recommend buying shares of Sprint at the current price because company shares trade below our fair value estimate. It has a price/sales of 0.5 compared to an historical five-year average of 0.6 and its price/cash flow is currently 3.4 compared to an historical 1.9.
We think the market is too focused on Sprint’s recent issues. The firm has valuable assets and a solid subscriber base, and is on an upward trend in terms of customers. If it can improve efficiency, the stock price should see a sharp rise.
Sirius XM Radio Inc. (SIRI) is a satellite radio provider based in the United States; in 2010, it added more than 1.4 million subscribers to its satellite radio service. The company also boasted a revenue of $2.817 billion in the same year. There have also been indications of improvement, such as a P/E of 193.00. In other news, TMZ Live, one of the largest celebrity and entertainment news organizations, will start airing on the Sirius network.
The first quarter of this year reported a 9% increase in revenue. Stocks today are at the highest they have been all year, standing at $2.18 at the time of writing. We recommend selling at the current price because company shares trade above the fair value estimate. Its PE, book value, and price/cash flow metrics are all much higher than its historical five-year average. Its PE is 185.2 compared to 29.5, book value is 30.5 compared to 24.8, and its price/cash flow is 26.1 compared to 7.9.
Sirius competes with traditional AM/FM radio, HD radio, Internet radio and Internet-enabled smart phones, advanced in-dash infotainment systems, direct broadband satellite and cable audio, and traffic news services. While many arguments have been made that increased car sales will fuel Sirius’s growth, we think the options above will ultimately take market share from Sirius.
General Maritime Corporation (GMR) is a shipping company with one of the largest tanker fleets in the world. On March 31, General Maritime announced that it would sell stocks via Dahlman Rose & Company LLC and Jefferies & Company Inc. On April 13, it acquired seven more modern tankers to build its fleet. Institutional investors own 51.95% of the stock and the company has a market cap of $190.83 million. Stocks currently trade at $1.98. In its first quarter report, GMR recorded a loss of $26.5 million, which was mainly due to a decrease in net voyage revenue.
General administrative costs went down 10% to $8.8 million for the first quarter compared to $9.7 million in 2010. We recommend buying shares of GMR at the current price because company shares trade below our fair value estimate. Its PE, book value, and price/cash flow metrics are all lower than its historical five-year average. Its PE is -0.7 compared to 1.3, book value is 0.6 compared to 1.5, and its price/cash flow is -25.6 compared to -9.2.
Cenveo, Inc. (CVO) is a paper and printing company that makes labels, forms, and envelopes. It is based in Stamford, Connecticut, with manufacturing operations all over the U.S., as well as Central America, South America and Asia. In November of 2010, Cenveo acquired Gilbreth Packaging Solutions Inc., and is expecting a $100 million increase in revenues for the 2011 fiscal year. On May 4, Cenveo held its annual meeting of shareholders and elected five directors.
The company also recently released its first quarter results and reported a sales increase of 11% to $503.1 million, compared to $453.9 million last year. Cenveo also reported a net income of $2.8 million, compared to a net loss of $11.1 million last year. It also had an adjusted EBITDA of $51.1 million, up 12% from the first quarter of 2010. Stocks stand at $6.24 at time of writing. We recommend selling at the current price because company shares appear overvalued. Its book value currently stands at -1.2 compared to a five-year historical average of 4.5 and its price/sales is at 0.2 compared to 0.4.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.