These low-tech stocks are about to go through the roof

 

Despite a recent hiccup, the stock market is doing quite well right now, with the S&P 500 having risen from its February / April triple-bottom around 2,580 to within striking distance of its all-time high of 2,872. Gains in the tech sector have continued, and although some of the once invulnerable FANG stocks, notably Facebook (FB) and Netflix, have run into trouble, Amazon.com (AMZN) continues its ascent, joined by non-FANG tech giants Microsoft (MSFT) and Apple (AAPL). Chipmaker stocks have also been doing their part to help the rally, and that’s encouraging, because in past cycles, a wave of rising semiconductor stocks has often preceded a wave of rising software stocks.

Of course, contrarian investors will not have failed to realize that with tech stocks soaring and everyone keen to climb aboard, the real bargains in the market today are likely to be found elsewhere. Today, I’ll be presenting five stocks that look like great bargains to me, considering, of course, their future earnings prospects and risk/reward ratios, and while they don’t all necessarily qualify as “old-economy,” they are all far removed from Silicon Valley and its lucrative but depressing cycle self-cannibalism.

Remember to treat these ideas as just that, ideas, and do your own research before making any investment decision.

Lamar Advertising (LAMR)

Lamar Advertising is a billboard company. It has been in business since 1902, though billboard leasing in the US goes all the way back to 1867. Because its ad space is physical, Lamar has to deal with issues such as weather and transportation that don’t affect online advertisers, but the business model has its compensating benefits. Since 2014, Lamar has been operating as a REIT, thus obtaining tax advantages. Since then, shares of LAMR are up 50%, and there is every indication they will do the same over the next five years. The company’s revenue and earnings have both risen every year since 2009, and it maintains a comfortable operating margin of 28.9%.

Chart courtesy of www.stockcharts.com

Unifi (UFI)

Unifi is a manufacturer of polyester and nylon yarns, as well as the industrial products used to make such yarns, which it sells to other yarn manufacturers. Of course, some of Unifi’s fibers and fabrics become apparel and hosiery, but others go into home-furnishings and automobiles, and still others are simply consumed by the manufacturing industry. The business is subject both to consumer and industrial demand, both of which are inconstant, making it highly cyclical, and as the company’s business is currently coming out of a long dip, just as the economy begins to grow lively. The company earned $2.01 per share in its fiscal 2016, then only $1.32 in its fiscal 2018, but analysts are forecasting a rebound to $1.68 in 2020. During that time, revenue has been rising steadily, from $643 million in 2016 to $679 million in 2018 and a projected $752 million in 2020.

Chart courtesy of www.stockcharts.com

Group 1 Automotive (GPI)

There’s sometimes a lot of money to be made making cars, but there’s always a lot of money to be made selling cars. That’s especially true for enterprising and opportunistic companies such as Group 1, which owns and operates 227 stores and 48 collision service centers throughout the US, the UK, and Braziil. Group 1 sells new and used vehicles, often acquiring its used vehicles as trade-ins on new vehicles. It also sells plenty of replacement parts, often using new parts to add value to old cars. Additionally, the company arranges financing, offers warranties and extended service contracts, provides maintenance and repairs, and also sells insurance. Group 1’s quarterly revenue is growing 10.2% year-over-year and it’s trailing P/E is a weirdly low 6.8. Wow, that’s the sort of valuation the market usually reserves for car manufacturers.

Chart courtesy of www.stockcharts.com

Laboratory Corporation of America Holdings (LH)

This company, which I’ll be referring to by its ticker symbol, LH, operates a network of diagnostic labs, a drug development group (Covance), and a salesforce that sells drugs to managed care organizations and hospitals. At present, the bulk of the company’s sales growth seems to be coming from Covance, but the company’s diagnostic division is also growing, in part because LH’s labs can do more esoteric (and higher margin) tests than many labs. LH has a compound annual growth rate of 12.5% and quarterly year-over-year earnings growth of 26%. There are thousands of labs doing clinical diagnostics work, making it an industry ripe for a wave of mergers and acquisitions.

Chart courtesy of www.stockcharts.com

McCormick & Company (MKC)

McCormick is a brand of spice. It is also the company that owns that brand, along with French, Frank’s RedHot, Lawry’s, Club House, Gourmet Garden, OLD BAY, and many more. The company sells its sauces, seasonings, and spices to consumers and the food industry. It’s an extremely profitable business, and it is only growing more so. The company continues to expand both organically and through acquisition, always careful to add new acquisitions that raise its overall profit margin. After earning $3.72 in 2017, the company is expected to earn $4.95 in 2018 and $5.35 in 2019, but it’s training P/E is just 19.7, well below the market’s average.

Chart courtesy of www.stockcharts.com

Symbols: GPI LAMR LH MKC UFI
Julian Close

Julian Close

Julian Close became a stockbroker in 1995. In his 20 years of market experience, he has seen all market conditions and written about every aspect of investing. Julian has also written extensively on corporate best practices and even written reports for the United Nations. He graduated from Davidson College in 1993 and received a Master of Arts in Teaching from Mary Baldwin College in 2011. You can see closing trades for all Julian's long and short positions and track his long term performance via twitter: @JulianClose_MIC.

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