04.06.09 Shopping List
Here is a selection of names from our Master screen. This screen eliminates dicier companies by factoring out those with lots of leverage. Also, to make sure that some of the valuation measures are meaningful, it sets a low bar of Return on Equity> zero. The model applies different weights to various valuation measures to then come up with a decile ranking of relative cheapness. The valuation measures are:
- Price to free cashflow
- Price to book value
- Price to cashflow
- Price to earnings
- Price to sales
- Dividend yield . . . along with a reasonable payout
From time to time, we look at a measure of pessimism for stocks by looking at the percentage of a stock’s float that is sold short. This time, I’ve suppressed the short interest factor. All of the mentioned stocks are in the first decile, meaning they’re in the cheapest 10% of the stocks (~142) in the screen. These are not sexy stocks. Other than the first, they all make stuff, but that’s not a bad attribute in this environment.
Manpower (MAN; NYSE) – One would be hard pressed to find an industry more unattractive than temporary staffing services. In this economy, who needs temp help? So, this stock has a nice contrary flavor to it.
- sells at 10% of its revenues per share
- sports a dividend yield of 2.1%, paying out 26.7% of earnings in doing so
- sells for a 10% premium to its book value
- in the screen, it’s the third cheapest
Archer Daniels Midland (ADM; NYSE) – Everyone knows about the debacle that is ethanol (couldn’t plant enough corn to make a dent in our energy needs; couldn’t sell a gallon of ethanol without prodigious government subsidies), and ADM was knee deep in corn. Still, the world needs food, and increasing amounts of it. Developing nations are enjoying increasingly better protein (from chicken to pork to beef), and the animals need fed.
- selling at 30% of its revenues per share
- 1.7% dividend, paying out 13.3% of earnings in the process
- at the leverage limit, though, at 24.7% debt:assets; earnings before interest & taxes covers interest expense almost 8x
- sells for a miserly 5.6x free cashflow per share
United States Steel(X; NYSE) – The demand for steel has come to a crashing halt as the global economy hit the skids. X competes against mini-mills Nucor and Stell Dynamics as well as bigger conglomerates like Arcelor-Mittal. Those facts have made X an unloved stock. Its 52-week high is $196.00. Today it trades for $25.16.
- trades for just 60% of its book value
- price:cashflow is 1.8x; price:free cashflow is 4.7x
- the following is not a misprint: price:earnings (trailing 12 mos.) is 1.4x (of course, its future earnings that determine value, but past earnings are, at least, known)
- dividend yield is 4.3% and just 6.1% of (trailing) earnings are paid out
- #1 cheapest stock in the screen
- almost 20% of the outstanding shares are sold short; there’s enough volume in the stock that that only represents about 1.2 days of average volume, so short covering wont, per se, boost the stock, but it does suggest the heavy pessimism.
A fair number of energy service names show up on the cheaper end of the screen. One in the first decile is:
BJ Services (BJS; NYSE) – This has a great chart, bouncing along at the low levels seen in October, November, December, and the Spring. It’s bumping up against the 117-day moving average.
- trading for 90% of book value and 60% of sales per share
- 1.8% dividend yield on a payout of 10%
- Return on equity a healthy 17.9%