3 Valuable Wallflower Stocks
Jacob is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Last week’s sell off saw some big names falling off the cliff. Stocks that gained handsomely in the rally so far, such as Gulfport Energy (NASDAQ: GPOR), Rite Aid (NYSE: RAD), and Walgreen (NYSE: WAG) were natural targets for investors to dump. However, this does not necessarily mean there is anything wrong with these stocks. Here is a closer look.
Gulfport Energy has made huge strides in recent years
As the name suggests, Gulfport Energy is an oil and natural gas exploration and production company. From annual sales of $86 million in 2009, the company has expanded itself to a $249 million a year corporation, which is indicative of the huge strides it has made in recent years. In line with top line growth, profits also grew threefold during the period. This growth company does not pay a dividend but compensates by offering excellent capital appreciation potential.
Despite the 12% drop last month, Gulfport Energy’s stock has 12 month returns running in three digits. Currently trading at a forward earnings ratio of 21.8, this may not be the most attractive stock, but continuously increasing production at its Utica plays offers great hope. Analysts mostly have positive reviews about Gulfport and the stock with target prices well in excess of 20% from current levels.
Drug store stocks need a booster dose
Shares of Pennsylvania-headquartered retail drugstore chain Rite Aid have doubled over the past 12 months, but shares have come under pressure lately, losing 11% last week. It may be a good time to initiate long calls in this stock, depending on individual investors’ risk appetite. The stock trades at an attractive forward price earnings ratio of 11.4. In the most recent quarter, the company posted a profit of $89.7 million from a loss of $28 million in the same period a year ago.
Where the company is facing issues is in boosting its sales income. During the last four years, its top line has remained largely the same, as grocery store chains such as Wal-Mart and Target are gradually eating into drugstores’ business. This is a real risk and has the potential to eat into the cost savings it has undertaken in recent times. The company only recently started generating profits after a long spell and still lags the overall industry on most profitability metrics.
Walgreen under pressure
Similarly, shares of Walgreen have buckled under pressure after the company undershot Street expectations while reporting its fiscal third-quarter results. Although the company said its sales grew 3.2% to $18.3 billion and profit jumped 16.2% to $624 million during the quarter, the market clearly had higher expectations from the company. As a result, shares have been sent down nearly 8% since the results were announced.
However, there is a counter-view that the dip can be used to buy into the stock as the company is one of the strongest performers in the industry. The stock’s forward price earnings ratio of 12.2 and a dividend yield of 2.4% further lend credence to this view. The company’s profitability is in line with the industry if not better, and a price to sales ratio of 0.6 indicates some undervaluation too.
Foolish bottom line
Overall, Gulfport Energy has a predictable trajectory and can be reasonably expected to reward investors. However, Rite Aid has bigger challenges to face and thus, this stock may not be suitable for investors with weak stomachs. A better fit may be Walgreen, which is a more established player in selling drugs through retail chains and has a better track record of navigating through tough times.
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Jacob Wolinsky has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!