Federico is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Here I chose three companies with high-quality fundamentals and a consistent history of returning value to shareholders. All three companies trade at least 14% off their 52-week highs and meet a variety of appealing criteria:
Positive free cash flow (FCF) per share and operating income per share.
Dividend coverage ratios of 170% or higher.
No negative one-, three- of five-year dividend growth.
Let's take a one-by-one look at the three names I chose.
One king of private equity off its highs
Kohlberg Kravis Roberts & Co(NYSE: KKR), mostly known as KKR, is now 15.5% down from its 52-week high. The company represents a good long idea if you are interested into having an asset manager in your portfolio. Having much more capital than any of its peers ($7.1 billion), the company can take advantage of various profitable opportunities that are restricted for most asset managers. Besides, the company is growing its non-private-equity arm at an incredibly fast pace (assets under management in this arm went from $16 to $32 billion in just two years). Most importantly, the company is ready to keep distributing cash to its shareholders. With a high 5.77% cash dividend yield (up by 97% year over year), a dividend coverage ratio of 193% and trading at 8.8 times P/E, I think KKR is the best stock in the asset-management space.
Price does not reflect the huge opportunities ahead
Inter Parfums(NASDAQ: IPAR), which is 14% off its 52-week highs, looks cheap taking into account the company's opportunities ahead. Inter Parfums is a multi-brand perfume maker and marketer (Mont Blanc, Lanvin, Dupont, among others) with healthy top-line growth and a rock-solid balance sheet.
The company is growing sales both organically and through additional licensing opportunities. Besides, it has great potential for margin expansion. As I mentioned before, Inter Parfums offers strong balance sheet and earnings growing at full speed (first-quarter EPS doubled from last year). With net sales increasing by 29% year over year (yoy) to $214 million and trading at 23 times P/E, I think Inter Parfums is one stock to hold in your watch-list. On top of growth, the company has not forgotten about its shareholders. Inter Parfums is growing its 1.65% cash dividend yield at a 12.5% annual pace.
Driving FCF and dividend growth.
Marathon Petroleum (NYSE: MPC), the oil refiner and marketer which was spun off from Marathon Oil in 2011, is 27% off its 52-week high. The company mixes growth in free cash flow (FCF) with growing shareholder return.The company has a processing capacity of more than 1.5 million barrels per day (mmbd), supplies product to more than 5,000 independent retail outlets, almost 1,500 company-operated Speedway-branded stores and also operates more than 9,500 miles of pipelines.
With its low net debt value (the company has a $1.3 billion net cash position) and its strong FCF outlook (13% FCF yield), I think Marathon Petroleum can continue to repurchase shares beyond the recent authorization ($2.5 billion). Paying a 2% cash dividend yield, growing its dividend at a 47% yoy pace and trading at 2013 7.3 times P/E, I think Marathon Petroleum is a good proposition within its space.
For long term investors, a sell-off constitutes good news. During the sell-off is when you can find great value for a good price. I do not know whether the recent market sell-off is over or not (nobody does), but what I can say is that these are the best times to look for value. All the companies named above hold great value. Most importantly, they also transform the value being created into cash flow for shareholders (dividends and buybacks). It's time to start looking.
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