Brian Pinchuk is a portfolio manager at Lorne Steinberg Wealth Management in Montreal.
What are we looking for?
Companies that are out of favour and that may be trading at a significant discount to their intrinsic values.
How we did it
I used the S&P Capital IQ Screener to look for stocks that meet certain value-based financial criteria. My goal was to whittle down Capital IQ’s universe of 16,000-plus North American listed stocks to companies that are unloved, with stock prices that may be undervalued.
This is in keeping with the deep value philosophy at Lorne Steinberg Wealth Management: We’re always on the lookout for quality businesses at compellingly cheap prices.
To turn up prospects, I looked for companies that have at least a 10-year operating history, with some stability in both their earnings and revenue.
Within that group, I wanted companies that are not laden in debt, but have a track record of generating positive free cash flow (that is, companies that make more from their operations than they need to maintain their business).
To make the grade, stocks had to also possess favourable value-based metrics, such as relatively low forward price-earnings multiples. I further reduced the list to companies with stock prices that have dropped significantly (a minimum of 30 per cent) from their five-year high.
The accompanying chart shows the top 20 companies sorted by the lowest forward earnings multiple, a measure that can help point to stock prices that do not reflect a company’s economic reality.
What we found
The 20 companies listed here are a good starting point for uncovering a treasure. However, numbers tell only part of the story and should be treated only as a guide. When shopping at a discount store, one must be mindful that many things are cheap for good reason.
Investors are strongly advised to do their own research before buying any of the stocks listed here.
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Out-of-favour, undervalued stocks: A top 20 list
|Jabil Circuit Inc.||JBL-N||3,390.20||61.1|
|Apollo Group Inc.||APOL-Q||1,940.20||19.1|
|Atlas Air Worldwide||AAWW-Q||1,002.30||52.4|
|Cabcharge Australia Ltd.||CAB-ASX||590.3||50.5|
|Flextronics Int'l Ltd.||FLEX-Q||4,387.50||59.6|
* Scored out of 10 (10 being the most stable). Source: S&P Capital IQ
|Jabil Circuit Inc.||JBL-N||3,390.20||61.1||1.73||1966||8||8||6.85|
|Apollo Group Inc.||APOL-Q||1,940.20||19.1||2.44||1973||10||10||7.09|
|Atlas Air Worldwide||AAWW-Q||1,002.30||52.4||0.811||1992||6||7||7.99|
|Cabcharge Australia Ltd.||CAB-ASX||590.3||50.5||2.31||1976||10||7||8.71|
|Flextronics Int'l Ltd.||FLEX-Q||4,387.50||59.6||2.21||1990||7||8||9.09|
|Capcom Co. Ltd.||9697-TSE||954.6||45.3||1.65||1979||6||8||11.8|
|Sykes Enterprises, Inc.||SYKE-Q||631.6||54.5||2.04||1977||7||8||12.1|
|Fresh Del Monte Produce Inc.||FDP-N||1,549.00||67.9||1.18||1886||7||10||12.5|
- Jabil Circuit Inc$19.400.00(0.00%)
- Apollo Education Group Inc$8.550.00(0.00%)
- Atlas Air Worldwide Holdings Inc$35.400.00(0.00%)
- AAR Corp$19.790.00(0.00%)
- Flextronics International Ltd$10.030.00(0.00%)
- ScanSource Inc$36.800.00(0.00%)
- Plexus Corp$34.800.00(0.00%)
- Sykes Enterprises Inc$28.490.00(0.00%)
- Textron Inc$32.000.00(0.00%)
- Fresh Del Monte Produce Inc$40.700.00(0.00%)
- Fluor Corp$42.710.00(0.00%)
- NVIDIA Corp$25.430.00(0.00%)
- Scholastic Corp$33.540.00(0.00%)
- Updated February 10 4:00 PM EST. Delayed by at least 15 minutes.