These stocks are incredible values (in case anyone actually cares about that sort of thing)


Value investing has become everyone’s least favorite strategy over the course of the current bull market, and not for no reason: those stocks traditionally considered “value stocks” have generally under-performed compared to the broader market. Perhaps this is a result of the times we live in and the unforgiving ethos that now rules us: winners win, losers lose, momentum is everything, and devil take the hindmost. Supposing for the moment that all of that is true, it means that stock prices are too high for those companies currently in favor and too low for companies that have fallen out of favor — even in cases when such companies have good long-term prospects.

That said, my own understanding of value differs somewhat from the word’s common usage and aligns more closely with the ideas put forward by Benjamin Graham, the father of value investing. This understanding includes rapidly growing companies, as well as companies that have fallen on hard times. They key, in each case, is that the company’s growth, balance sheet, and long-term prospects justify its valuation, whether that valuation be high or low.

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

PulteGroup (PHM)

The home-building market is hot right now. Rising wages and higher population density are driving up rent and property values, making building more profitable. This is all to the good, but it also makes people nervous. The moment you tell people that home-building is hot, they get a grim look on their faces and think, “Oh boy, isn’t this how it begins?” Well, to be sure, overbuilding is exactly how it began last time, and to be sure, last time, it ended badly, but there is no indication at this time that anyone is engaging in the sort of overbuilding that preceded the 2008 financial crisis. In fact, new orders for the second half of 2018 have been a tiny bit slower than they were for the first half of the year. So why PulteGroup in particular? Extremely low valuations: (t P/E: 11.25, f P/E 7.27).

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Comcast (CMCSA)

You might not necessarily think of Comcast as a value stock, but in fact, it ticks every box. The huge cable provider / media company / theme park operator is very much out of favor, with shares having fallen from $43 to below $31 earlier this year before rebounding up to $35.75. Comcast has taken on quite a bit of debt this year in order to acquire 100% of UK satellite broadcaster Sky plc, but that’s not really an issue as the additional expense is more than offset by the additional revenue. Comcast has quarterly year-over-year earnings growth of 27.6%, making its trailing P/E of 7 and its forward P/E of 13.8 bizarre in the extreme. Yes, it’s a competitive landscape, but with its profit margin of 27.5%, Comcast is well situated to fend off any rivals.

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Fibria Celulose (FBR)

Fibria Celulose is one of those companies that sounds a little boring at first, but then you realize, “Hey, I can make money off this,” and all of a sudden it becomes fascinating. It’s a Brazilian company that manufactures bleached eucalyptus kraft pulp which it sells both in Brazil and internationally. Shares rose rapidly in January along with the broader market, but have remained in a tight range, around $19 since March. The attraction here is in the numbers. The company boasts an incredible rate of growth: (quarterly year-over-year revenue growth of 78% and earnings growth of 88%!), along with a comparatively low trailing P/E of 29 and a ferociously low forward P/E of 11.

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I thought about mentioning that it’s pretty dumb to name a company HP when its ticker symbol is HPQ, but nevermind, it’s beneath me. The company makes about 64% of its revenue from personal and business computers and 36% from printers. Interestingly, the company doesn’t yet make much money from 3D printing, which might make some wonder why it was necessary to crush profit margins in the 3D printing industry for everyone else, but again, it’s beneath me. So why are we discussing this old tech dinosaur? Because HP’s revenue is growing at 13% annually and its valuations are just too low for that: (t P/E 9.29, f P/E 11.3). They only want you to think the company is a dinosaur. That’s how they get you.

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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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