Are the So-Called 'Undervalued' Stocks Really So?
Gautam is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Last Monday, I found my colleague scratching his head, squinting at the computer screen with his face millimeters from the monitor. Curious, I asked him what was wrong. I got back a string of curses and a few well-aimed punches at the keyboard. After half an hour’s effort, I gather that he was frustrated with the stock market. The "good" stocks, he claimed, should be going up.
Now I’m sure, you are all asking yourselves, what exactly are “good stocks”? I did too. Turns out they are, to him, high-profile multi-national companies. My exasperated friend, like so many others before him, had become a victim to the "good-company good-money" propaganda.
But, in reality, that hardly is the case. Companies like Apple, Google, Amazon, and Microsoft are the most volatile ones out there. The fierce competition makes them much more prone to fluctuations than any other. In comparison, there are so many relatively lesser known companies whose market value is much less volatile, steadily increasing on a gentle incline. Let us have a look…
Some ‘undervalued’ stocks
In my office circles, I have frequently heard the term, "undervalued stocks." The first question to ask ourselves is: what are undervalued stocks? The answer is quite simple – it is shares of those companies that we do not know much about. And in most cases – that we do NOT want to know much about. “A known devil is better than the unknown, right?”
Because, if most of us had done our homework right, we would have realized just how much we could benefit from knowing the “unknown devil”, just how dependable some of these companies are! But, not to worry, it is not yet too late. Have a look at the four companies analyzed below and you might get an idea what I’m talking about.
- VALSPAR CORPORATION - Valspar (NYSE: VAL) is one of the leading paint companies of the world. Third quarter revenues increased beating last year’s profits and continuing the upward trend of the year. Diluted earnings per share topped out at $0.92 per share, exceeding analyst expectations. Coatings sales margin increased from $561 million to $570 million last year and paint sales totaled $443 million, dragging up net sales by 3 percent, excluding negative currency impacts.
The company’s upward curve has been a year-long trend. In Q1, Valspar bounced back from $295 million loss with a 5.1% growth in profits. Net Income was 55.8 million. Q2, too, showed excellent results will sales totaling 1.03 billion, a 4 percent increase from the second quarter of the previous year.
Already on a steady increase, company officials expect this high to continue. Judging by the three consecutive highs already, it is unlikely to disappoint.
- AKAMAI TECHNOLOGIES - Another early riser which has caught my attention is Akamai (NASDAQ: AKAM). A provider of content delivery and cloud services, Akamai, has shown tremendous growth in the past year with four consecutive quarters showing accelerated growth. Third quarter revenues show a growth of 23 percent (up from the 19.6 percent of Q2) easily beating analysts’ expectations.
Current revenue is $345.3 million. Earnings of 43 cents per share topped the consensus by two cents. Akamai’s cash gross margin also rose by 200 basis points or 81 percent, surpassing even the highest expectations of 79 percent.
The move to cloud, growth in mobility, growth of online videos, infrastructure have shown tremendous benefits. At a recent price of $37.07, The company is now trading over 20 times higher than expectations. 2013 consensus shows the figures to rise still more.
- QUESTCOR PHARMACEUTICALS - Not to be left behind, Questcor Pharmaceuticals (NASDAQ: QCOR), a biopharmaceutical company has shown impressive revenues in the most recent quarter. Company officials reported revenues of $55.69 million, or $0.91 per diluted share (up from $22.85 million, or $0.35 per diluted share, for the same quarter of 2011)
Net sales were $140 million, more than double that of the previous year and income climbed to $135 million.
Questcor’s performance has been amazing traders throughout the year. In Q1, the company shocked Wall Street, returning profits more than triple that of the previous year-same quarter. Sales rose over 160% up to $96 million. Q2, too, saw a steady growth, with sales rising upto $120 million.
The company’s steady rise has interested more that just a ‘few’ traders, and it is high time others got into the game. Since early 2010, Questcor has shown promise. Most recently, the stock has been trading at $40 to $44. Judging by P/E and analyst opinions, it wouldn’t be at all surprising if prices jumped to $80/share in Q4.
- USANA HEALTH SCIENCES - Usana Health (NYSE: USNA), reported third quarter profits of $17.5 million, indicating $1.18 per share. This is in stark contrast to the $12.4 million of previous year, more than $5 million! Increase in the company’s Asia Pacific and North American/European regions boosted net sales for the third quarter by 15.1 percent to $165.2 million, up from the $143.5 million of last year.
This company too, has shown promising results all through 2012. In Q2, The company saw a growth of 20.84 per cent with profits of $16.75 million.
Looking ahead, company officials expect full-year earnings of $4.35 to $4.40 per share, (previous outlook was of $4.10 to $4.20 per share). Net sales are also expected to rise to about $645 million. Thus, it is no-brainer why people are flocking here.
What it means
Looking at the above four companies, we can all see the trend – amazing performances all through the year. Very little fluctuation, and a solid ground to depend on. How many of us can so about the high-profile stock we are betting our money on?
This is the time to smarten up. As evidenced by the guideline, the small companies and the so-called ‘undervalued’ stocks are now the go-getters. Forbes website has published a list of the 100 best small companies of USA. Go check it out, it is guaranteed to be useful.
As for my opinion, even if you are not willing to change your entire perspective and verify all the data, take it from me – if you place your faith on the above mentioned companies, you are not likely to see the downside any time soon.
vestedin has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. 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!