AllianceBernstein, Pulte, Hibbett, Lear, Pier 1 – 5 Stocks To Buy by John Dorfman, Dorfman Value Investments
Buying low is half the secret to making money in the stock market. But as every seasoned investor knows, a cheap stock can stay cheap for a long time.
If you can catch an inflection point when a company’s fortunes are improving but its stock is still cheap, you can make good money. That’s what I’ll try to do in today’s column.
This year has been a record-breaking year for initial public offerings with companies going public via SPAC mergers, direct listings and standard IPOS. At Techlive this week, Jack Cassel of Nasdaq and A.J. Murphy of Standard Industries joined Willem Marx of The Wall Street Journal and Barron's Group to talk about companies and trends in Read More
Using software from TD Ameritrade Institutional, I screened this weekend for stocks that:
- Sell for 15 times per-share earnings or less.
- Show at least 15 percent earnings growth in their latest quarter, compared to the previous quarter.
- Posted earnings in the latest quarter that were above analysts’ expectations.
- Carry debt no more than 50 percent of total capital.
From the three dozen stocks that passed these tests (out of about 3,000 stocks with a market value of $250 million or more), I’ve selected five to recommend.
AllianceBernstein Holding LP (AB), based in New York City, is a large money manager serving institutional clients. Though assets under management fell in January, they were still above $450 billion. The company is debt-free, and its profitability lately has been respectable. Just think what it could do in a better market climate.
Back in 2006-07, AllianceBernstein was earning well more than 20 percent returns on stockholders’ equity. Today, it is earning about half that, and the stock can be bought for 10 times earnings.
I like the homebuilders in general because home sales have climbed only halfway back to their boom levels of 2003-06. If you follow the month-to-month fluctuations, it will make you dizzy, but I think the underlying trend is one of recovery.
In this industry, Pulte Group Inc. (PHM), headquartered in Atlanta, is one of my favorites. The stock sells for 13 times recent earnings, but less than 9 times the profits analysts expect for this year.
Pulte’s debt is moderate, in contrast to some homebuilders, whose balance sheets were shredded by the industry’s severe slump in 2008-12.
In late 2013, you would have paid $67 a share for Hibbett Sports Inc. (HIBB). Today, it’s less than $36. Yet since 2013, Hibbett has increased its sales by about $100 million to $936 million in 2015 while holding its gross profit margin steady at about 35 percent.
Hibbett, based in Birmingham, Ala., competes with Dick’s Sporting Goods, The Sports Authority and others in the sporting goods space. It’s not easy, but Hibbett’s return on stockholders’ equity recently was about 22 percent, way above average for a retailer. I believe Hibbett is a bargain at 12 times earnings.
No one would ever say the car business isn’t cyclical. But it’s on the upswing now in the United States, and I don’t think it will be as bad as predicted in China and Europe. Lear Corp. (LEA) of Southfield, Mich., provides seating and electrical systems for most of the world’s largest car manufacturers, including General Motors, Ford, Toyota, BMW and Volvo.
A few well-known investors who initiated positions in Lear during the fourth quarter were Joel Greenblatt (author of “The Little Book that Beats the Market”), Louis Moore Bacon (founder of Moore Capital Management), and Lee Ainslee (who runs the hedge fund Maverick Capital).
Universally unloved is Pier 1 Imports Inc. (PIR) of Fort Worth, which sells imported furniture and knickknacks. Textbooks say that Pier 1 should be benefitting from a strong dollar (which makes the goods it imports cheaper). Reality says that this chain has been struggling.
However, the stock has now descended to less than $5 a share, down from about $23 in mid-2013. Today’s price is 10 times the earnings analysts expect this year. Meanwhile, the company earned a respectable return on stockholders’ equity of 15 percent in its latest quarter.
I am discontinuing my series of articles about stocks on the New Lows List. This series ran for 22 columns from 1998 through 2006 and from 2011 through 2015.
My picks from a year ago did fine, with a gain of 8.4 percent, versus a loss of 5.4 percent for the Standard & Poor’s 500. However, the average one-year return on all my columns in the series was 8.93 percent, almost identical to the S&P at 8.99 percent. My goal is to try to bring you ways to do better than the market.
Disclosure: I own Lear and Pulte Group personally and for most of my clients. I have no positions in the other stocks mentioned in today’s column.John Dorfman is chairman of Dorfman Value Investments LLC in Boston and a syndicated columnist. He can be reached at [email protected]