Kapitall reports the following 10 companies are undervalued. Some of these companies do appear to be undervalued relative to the broader market, but others do not. The report claims that the best proxy of fair value is the average analyst target price of the stock. It’s not clear that the average target price is very useful (are target prices normally distributed?), and, in any event, stock analysts tend to be overly bullish about a company’s prospects, lest the analysts lose access to company management. Therefore, relying on the mean analyst target price (or even the median) as a proxy for fair value seems a dubious method. Following is information on these 10 companies:
- Allegheny Technologies (NYSE:ATI): The company’s PEG ratio is 0.40, despite have quarterly revenue growth for the year over year period of 36.5% and quarterly earnings growth for the year over year period of 20.9%. The shares have traded in a 52-week range of $39.35 to $73.53 and most recently traded at $59.25. Its market capitalization is $5.86 billion. About the company: Allegheny Technologies, Inc., produces specialty materials. The Company’s products include include titanium and titanium alloys, nickel-based alloys and superalloys, zirconium, hafnium and niobium, stainless and specialty steel alloys, grain-oriented electrical steel, tungsten-based materials and cutting tools, carbon alloy impression die forgings, and large grey and ductile iron. Competitors to Watch: RTI Intl. Metals, Inc. (NYSE:RTI), China Direct Industries, Inc. (NASDAQ:CDII), Titanium Metals Corp. (NYSE:TIE), AK Steel Holding Corp. (NYSE:AKS), Precision Castparts Corp. (NYSE:PCP), ArcelorMittal (NYSE:MT), Schnitzer Steel (NASDAQ:SCHN), Steel Dynamics (NASDAQ:STLD) and Nucor (NYSE:NUE).
- RealD Inc. (NYSE:RLD): The company lost $12.29 million over the past 12 months. Bearish opinion about the stock is high: 43% of its float of 40.5 million shares is sold short. That is about 12 million shares, up from a short position of 8.4 million shares in the prior month. Its PEG ratio is 1.67, its price to sales ratio is 5.42, and its price to book ratio is 9.2. About the only valuation measure which suggests that this company’s stock is even close to being undervalued is its EV/Revenue, which is 5.36. But its EV/EBITDA multiple is a sky-high 145.7. The shares have traded in a 52-week range of $15.63 to $35.60 and most recently traded at $22.98 per share. About the company: RealD Inc. is a global licensor of stereoscopic (three-dimensional), or 3D, technologies. The Company licenses its Cinema Systems to motion picture exhibitors that show 3D motion pictures and alternative 3D content. RealD also offers active and passive eyewear, and display and gaming technologies to consumer electronics manufacturers and content producers and distributors.
- TiVo (NASDAQ:TIVO): The company has a PEG ratio of 0.46, a price to sales ratio of 5.8, and a price to book ratio of 3.76. Because the company has had negative operating earnings over the past 12 months, its EV/EBITDA ratio is -10.23. The shares have traded in a 52-week range of $6.92 to $12.65, and most recently traded at $9.86. Its market capitalization is $1.18 billion. About the company: TiVo Inc. provides a subscription-based service enabled by a personal video recorder. The Company’s service allows viewers to locate and record multiple shows, control live television, choose viewing preferences, and access their customized lineup of shows. TiVo’s service also serves as a platform to deliver television programming, advertising, and in-home commerce. Competitors to Watch: DISH Network Corp. (NASDAQ:DISH), Comcast Corporation (NASDAQ:CMCSA), Virgin Media Inc. (NASDAQ:VMED), DIRECTV (NASDAQ:DTV), Time Warner Cable Inc. (NYSE:TWC), Cablevision Systems Corp. (NYSE:CVC), Verizon (NYSE:VZ), Charter (NASDAQ:CHTR), Time Warner (NYSE:TWX), AT&T (NYSE:T) and Echostar Corporation (NASDAQ:SATS).
- Alcoa (NYSE:AA): Its forward P/E is 9.96, its PEG ratio is 0.62, its price to sales ratio is 0.73, and its price to book ratio is 1.1. EV/Revnue is 1.12, and EV/EBITDA is 7.99. Despite these attractive valuations, more than 5% of the company’s float is sold short. The shares have traded in a 52-week range of $9.81 to $18.47 and have most recently traded at $15.23. Its market capitalization is $16.2 billion. About the company: Alcoa Inc. produces primary aluminum, fabricated aluminum, and alumina, and participates in mining, refining, smelting, fabricating, and recycling. The Company serves customers worldwide primarily in the transportation, packaging, building, and industrial markets with both fabricated and finished products. Top Competitors to Watch: Century Aluminum Company (NASDAQ:CENX), Alumina Limited (NYSE:AWC), Kaiser Aluminum Corp. (NASDAQ:KALU), Noranda Aluminum Holding Corporation (NYSE:NOR), and Aluminum Corp. of China (NYSE:ACH).
- Imax Corp. (NASDAQ:IMAX): On a strict valuation basis, the company’s shares look overvalued. Its forward P/E ratio is 19.18, its PEG ratio is 1.33, its price to sales ratio is 8.83, its price to book ratio is 12.04, its EV/Revenue ratio is 8.84, and its EV/EBITDA ratio is 57. The company’s quarterly revenue growth for the year over year period is -38%, and its earnings have been negative. The shares have traded in a 52-week range of $12.10 to $38 and most recently traded at $29.31. Its market capitalization is $1.8 billion. About the company: Imax Corporation designs and manufactures projection and sound systems for giant-screen theaters and designs custom attractions, including motion simulation theaters, for both large-scale attractions and smaller venues. The Company also manufactures digital image delivery systems in the form of digital projectors.
- Jefferies Group (NYSE:JEF): This bank stock seems somewhat undervalued: its forward P/E is 1.11, its PEG ratio is 0.85, its price to sales ratio is 1.42, and its price to book ratio is 1.57. On the other hand its EV/Revenue ratio is -3.21. The company has a very high debt-to-equity ratio of 668.89. The shares have traded in a 52-week range of $20 to $27.12 and most recently traded at $20.08 per share. Its market capitalization is $4.04 billion. About the company: Jefferies Group, Inc. is an independent, full-service global securities and investment banking firm. The Company provides clients with capital markets and financial advisory services, including M&A and restructuring, as well as institutional brokerage in equity, equity-linked, high yield and other fixed income securities, along with fundamental research and asset management. Competitors to Watch: Greenhill & Co., Inc. (NYSE:GHL), Piper Jaffray Companies (NYSE:PJC), Rodman & Renshaw Capital Group Inc. (NASDAQ:RODM), Goldman Sachs Group, Inc. (NYSE:GS), JMP Group Inc. (NYSE:JMP), Morgan Stanley (NYSE:MS), Bank of America (NYSE:BAC), Citigroup (NYSE:C), JPMorgan Chase (NYSE:JPM), Wells Fargo (NYSE:WFC), Evercore Partners Inc. (NYSE:EVR), Merriman Holdings Inc (NASDAQ:MERR) and KBW, Inc. (NYSE:KBW).
- Textron (NYSE:TXT): This company does seem undervalued. Its forward P/E ratio is 12.3, its PEG ratio is 0.86, its price to sales ratio is 0.57, its price to book ratio is 2.03, it EV/Revenue ratio is 1.01, and its EV/EBITDA ratio is 11.37. The shares have traded in a 52-week range of $15.88 to $28.87 and most recently traded at $22.25. Its market capitalization is $6.14 billion. About the company: Textron Inc. is a global, multi-industry company with operations in aircraft, defense, industrial products, and finance. The Company’s products include airplanes, helicopters, weapons, and automotive products. Textron’s finance division offers asset based lending, aviation, distribution, golf, and resort finance, as well as structured capital.
- Goodyear Tire and Rubber (NYSE:GT): This company sports very low valuation multiples, however, those may be an artifact of its negative profit margin and negative ROE for the past 12 months. Its trailing profit margin is -.33% and its trailing ROE is -.84%. In other words, despite its low valuation multiples, the market may see sufficient reason to accord the company such low valuations. Its forward P/E ratio is 7.53, its PEG ratio is 037, its price to sales ratio is 0.19, its price to book ratio is 4.69, its EV/revenue multiple is 0.35, and its EV/EBITDA multiple is 4.62. About the company: The Goodyear Tire & Rubber Company develops, manufactures, distributes, and sells tires for most applications. The Company also manufactures and markets several lines of rubber and rubber-related chemicals and provides automotive repair services. Goodyear also retreads truck, aircraft, and heavy equipment tires. The Company provides its products and services worldwide.
- Concho Resources, Inc. (NYSE:CXO): The company’s PEG ratio is 0.43. Aside from that multiple, its valuation metrics are rather unappealing. Its year over year quarterly earnings growth is a concern, at -37%, and its levered free cash flow, at -1.93 billion, is also a concern. Levered free cash flow is the amount of cash left after interest payments on debt are made. You want to see a positive number here, otherwise the company’s free cash flow is not able to cover the company’s interest payments. If that is the case, then cash the company holds on hand will decrease over time, and a liquidity crunch could result. The shares have traded in a 52-week range of $51.51 to $110.89 and have recently traded at $84.55. Its market capitalization is $8.67 billion. About the company: Concho Resources Inc. acquires, develops and explores for oil and natural gas properties in the Permian Basin area of Southeast New Mexico and West Texas.
- New Oriental Education Technology Group (NYSE:EDU): Its unclear why this company appears in a list of undervalued companies. Its forward P/E ratio is 31.73, its PEG ratio is 1.52, its price to sales ratio is 8.11, its price to book ratio is 7.49, its EV/revenue multiple is 7.05, and its EV/EBITDA multiple is 34.90. The company is, however, growing rather strongly: year over year quarterly revenue growth is 48.6% and its year over year quarterly earnings growth is 68.1%. It is not clear, however, how sustainable this growth is. The shares have traded in a 52-week range of $86.82 to $131.86, and most recently traded at $107.02. About the company: New Oriental Education & Technology Group, Inc. offers educational services. The Company offers foreign language training, test preparation courses for admissions and assessment tests in the United States, the PRC and Commonwealth countries, primary and secondary school education, development and distribution of educational content, software and other technology, and online classes.
(Note: Selected financial data are sourced from Yahoo! Finance. All data are assumed to be accurate.)
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