While company valuations seem to have taken a back seat to global macroeconomic concerns in Septmeber, investors would be well served by identifying buying opportunities among stocks that in addition to having strong fundamentals are also showing resilience to the market’s recent turmoil as measured by investor sentiment toward their stocks. In this vein we have put together a list of ten value stocks that have high overall fundamental grades and a strong and rising sentiment indicator, as measured both by MarketGrader.com.
Our selection criteria is simple: we looked for companies with an overall grade above 70 (out of 100 total possible points) with a Value grade at least as high to their Growth grade. For context, MarketGrader.com’s 24-indicator analysis is broken down into Growth, Value, Profitability and Cash Flow indicators (six each), which are then aggregated into our final overall grade. Additionally, and perhaps more importantly in the context of today’s volatile environment, we looked for companies with a high Sentiment score in our zero to ten point scale. MarketGrader.com’s Sentiment Analysis is broken down into four indicators: Price Trend, based on a MACD analysis, Price Momentum, based on a relative price strength analysis, Earnings Guidance, which tracks the rate at which companies and the analysts that follow them change their next fiscal year EPS forecasts and Short Interest, based on monthly changes to short interest as a percentage of float. The top ten stocks to pass our filter are listed below.
- Simulations Plus Inc. (NASDAQ: SLP)
This micro cap, worth only $48.6 million, designs and builds software used in the development of new drugs by biotechnology and pharmaceutical companies. The stock’s overall Sentiment score is 8.8 (out of 10.) Its Price Trend is Positive and based on its Price Momentum its relative strength is at the 90th percentile, or better than 90% of the stocks in MarketGrader.com’s coverage universe. Today the analyst consensus estimate for the company’s fiscal year 2012 EPS is $0.31 per share compared to $0.25 three months ago.
Fundamentally the company’s overall grade is 79.8 (out of 100) which ranks it as the third highest stock out of 90 in the Packaged Software industry followed by MarketGrader.com. The company’s trailing 12-month net income is almost twice as high as what it was three years ago on trailing 12-month revenue of $11.81 million. During this same period Simulation Plus generated $3.1 million in free cash flow and produced a 20.8% return on equity and a 32% operating margin. The company has no debt and the stock trades at 17 times trailing and 13 times forward earnings per share.
- Nike Inc. (NYSE: NKE)
Nike’s Sentiment score of 8.9 is based partly on a positive Price Trend indicator and Price Momentum at the 89th percentile of all stocks followed by MarketGrader.com. Today’s earnings consensus estimate for fiscal year 2012 is $4.96 per share vs. $4.81 three months ago. Only 1% of the company’s share float is sold short.
Nike’s overall grade of 76.1 makes it the fifth highest ranked company among the 45 that we follow in the Apparel/Footwear industry. Last quarter it reported revenue and net income that were up 13.6% and 13.8% respectively from a year earlier. Its trailing 12-month revenue and net income through the period ended last quarter were $20.85 billion and $2.13 billion, with $858 million of free cash flow. Nike is virtually debt free despite total debt of $663 million considering its cash on hand last quarter was $4.54 billion. Based on its operating results from the last 12 months its operating margin was 12.9%, its return on equity was 21.7% and its return on invested capital was 26.6%. When its cost of equity and debt are subtracted, on an after tax basis, from this number, the result is an economic value added of 18.8%. This reflects the return to investors after accounting not only for the company’s operating costs but also to the opportunity cost of investing in its shares. The stock’s dividend yield is currently 1.4%; it trades at 19 times trailing and 17 times forward earnings per share (the richest valuation on our list.)
- Microsoft Corp. (NASDAQ: MSFT)
Microsoft’s shares trade currently in a positive Price Trend and have better Price Momentum than 70% of all stocks in our coverage universe. Analysts following the company expect, on average, fiscal year 2012 earnings per share of $2.86, up from the consensus estimate of $2.76 three months ago. 1% of the company’s float is sold short.
Based on an overall grade of 86.0 Microsoft is ranked eighth out of 873 Technology companies followed by MarketGrader.com. Despite its size the company continues to record outstanding net income growth, up 30% last quarter from a year earlier and up 31% in three years based on trailing 12-month net income of $5.87 billion. During this period Microsoft generated a remarkable $19.46 billion in free cash flow. With its recent 25% dividend increase the stock now yields 3%, about in line with 30-year U.S. government bonds. In addition to its payout the company has bought back 15% of its outstanding shares in the last five years even after accounting for newly issues shares used as compensation. The stock’s trailing and forward P/E are 9.5 and 8.2 respectively.
- Metropolitan Health Networks Inc. (AMEX: MDF)
Metropolitan Health Networks is a provider of healthcare services to the elderly and to patients with certain disabilities. Its stock currently has a Sentiment score of 8.7 with a stock price trend that, while still positive, seems to be flattening out, despite price momentum that is better than 76% of the stocks in our coverage universe. Its fiscal year 2011 consensus estimate of $0.65 per share is lower than the $0.67 consensus from three months ago. Its short interest is 4% of float.
The company’s overall fundamental grade of 78.9 makes it the highest ranked stock in the Medical/Nursing Services industry, in which we cover 36 companies. It also makes MDF the 12th best stock out of 625 in our entire Health Care sector coverage list. The company’s market cap is $192 million. Its trailing 12-month revenue of $374.56 million is 26% higher than it was three years ago while its net income of $26.7 million is three and a half times higher over the same time period. The company has no debt, a return on invested capital of almost 52% and operating margins of 11.46%, above the 10.76% industry average. The stock trades at only 7.3 times trailing and 6.5 times forward earnings per share.
- Eli Lilly & Co. (NYSE: LLY)
LLY’s Sentiment score of 8.0 is based on a Price Trend indicator that is positive, even though the chart has flattened out recently, and a Price Momentum indicator that ranks the stock’s relative strength at the 78th percentile of all stocks under coverage. The EPS consensus estimate for the 2011 fiscal year is for $4.33 per share compared to $4.28 three months ago. Short interest stands at 3% of float.
Eli Lilly’s overall fundamental grade of 70.6 ranks it third among the 18 Major Pharmaceutical companies followed by MarketGrader.com. While the company’s revenue increased by 8.8% last quarter its net income fell 11.2%, both relative to the year earlier period. However, its trailing 12-month net income of $4.73 billion is 24% higher than it was three years ago. It generated $1.35 billion in free cash flow last quarter alone and $4.36 billion in the last 12 months. Total debt of $6.73 billion is only slightly higher than its $6.33 billion in cash on hand, which helps explain the company’s generous payout. The stock, which trades at 8.8 and 10 times trailing and forward EPS respectively is currently yielding an incredible 5.3% based on a $0.49 per share dividend.
- Intel Corp. (NASD: INTC)
INTC’s current Price Trend is positive, apparently reversing a recent negative trend. The stock’s Price Momentum ranks at the 90th percentile and its short interest is 3% of its public float. Analysts following the company expect a fiscal year 2012 report of $2.37 per share compared to $2.27 just three months ago. All of this results in a Sentiment score of 7.1, a recent upgrade from ‘Neutral’ to ‘Positive.’
The company’s current fundamental grade of 89.1 makes Intel the highest ranked stock in the Semiconductor industry, where we follow 94 stocks and the second highest ranked company in the entire Technology sector, where we follow 872 companies. Its revenue increased 21% last quarter alone while net income increased only 2.3% given that capital expenditures jumped 137% as the company continues to invest in the development of processors geared towards mobile devices, diversifying it away from its PC-focused business and putting it in a favorable position for future market share gains. Despite its ongoing investments Intel still generated $526 million in free cash flow last quarter and $4.96 billion in the last months. Its total debt of $2.16 billion is dwarfed by its $11.55 billion in cash on hand. It continues to operate very profitably with a remarkable 34% operating margin on trailing 12-month sales of $48.4 billion. The stock trades at 10 and 9 times trailing and forward earnings per share and, at current its price, yields 3.24%.
- Hi-Tech Pharmacal Co. Inc. (NASD: HITK)
The stock’s Price Trend is positive and its Price Momentum ranks at the 95th percentile of all stocks in our database. The consensus estimate for fiscal year 2012 of $3.05 per share is 35% higher today than the expected $2.26 three months ago. Short interest is 13% and the stock’s Sentiment score is 8.9.
Hi-Tech Pharmacal’s overall grade of 92.1 currently makes it the highest graded company in all of MarketGrader.com, across all sectors. Its revenue and net income increased by 39% and 59% respectively last quarter, when it also generated $16.75 million in free cash flow on sales of $56.2 million. Free cash flow in the last 12 months was $35.37 million. The company has no debt and operating margins of 31.42% compared to the pharmaceutical industry average of 16.67%. The stock trades at 9.2 times trailing earnings and 12 times forward estimates.
- j2 Global Communications Inc. (NASD: JCOM)
JCOM, which offers clod-based communications services such as e-faxes, voicemail, conference calling and data storage is the second highest ranked stock in the Internet Software & Services industry behind Google (NASDAQ:GOOG). It also ranks ninth overall among all Technology stocks. It has a market capitalization of $1.35 billion.
The stock’s Sentiment score is 8.3, based on a positive Price Trend and Price Momentum ranked above 83% of all stocks in our coverage list. Consensus fiscal year 2011 estimates of $2.52 exceed the $2.37 estimate from three months ago. Short interest is 11%.
The company had strong report last quarter with a 40% jump in sales and 52% increase in net income. Trailing 12-month revenue of $292.86 million is up 26.3% in the last three years and net income is higher by 55% at $106.15 million. The company has no debt, $151 million in cash on hand and it generated $40.5 million in free cash flow last quarter and $126.2 million in the last year. Its return on equity in the last 12 months was 21% on 39% operating margins. The stock’s trailing and forward P/E are 12.8 and 11.1 respectively.
- DSW Inc. Cl A (NYSE: DSW)
DSW is the number one stock in the Apparel & Footwear industry according to MarketGrader.com based on an overall grade of 80.0. The stock’s Sentiment score of 8.7 is based on an EPS consensus estimate of $2.87 for the fiscal year ended January 2012, up from $2.79 three months ago, a positive Price Trend, Price Momentum ranked higher than 93% of all stocks in our system and short interest of 5%.
The company’s trailing 12-month revenue and net income are up 36% and 419% in the last three years to $1.94 billion and $232 million, with TTM free cash flow of $124.5 million. Total debt is $133.4 million and cash on hand is $350.7 million. The company’s operating margin of 10.25% exceeds the industry 9.06% average and its return on equity was 37.04% in the last year. The stock trades at 7.8 and 14.5 times trailing and forward earnings per share.
- CF Industries Holdings Inc. (NYSE: CF)
Despite all the negativity that has surrounded basic material stocks during September, CF Industries has a Sentiment score of 8.9 based on a positive Price Trend and Price Momentum ranked at the 89th percentile; additionally the consensus estimate for the company’s fiscal year 2011 has increased from $16.69 in earnings per share three months ago to $21.22 today, a 27% jump. Short interest is 4%.
The company’s overall grade of 82.2 ranks it number one among 16 companies in the Agricultural Chemicals industry followed by MarketGrader.com and the 14th best stock, based on its fundamentals, in the entire Materials sector. CF Industries has cut its debt by 38% in the last year, down to $1.62 billion, or 25% of total capital. It has $1.36 billion in cash on hand and it generated $1.78 billion in free cash flow in the last 12 months. Both revenue and net income grew strongly last quarter while on a trailing 12-month basis they grew a remarkable 57% and 52% to $5.13 billion and $1.02 billion respectively. Its operating margin of 36.7% exceeds the industry average of 21.8%. Return on equity in the last year was 20.9% and the stock trades at 11 times trailing and 7.9 times forward earnings per share. The company’s market cap is $10.4 billion.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.