Value Investing: US (2021)

Recap – I intend to build a long term core portfolio comprising of up to 30 stocks with 50-60% of my total investable capital shall be invested in these stocks. These 30 stocks shall be tested against value investing principles. Geographic focus: ASEAN Region + US + Hong Kong. My key requirements are as follows:

  • Date of extraction: 25 April 2021
  • Minimum ROE: >15%
  • PEG <2x
  • Price-to-Sales <3x
  • Total Debt to Equity < 50%
  • Minimum market cap > USD500 m
  • Other criteria – current ratio, revenue growth rate, book value growth, gearing

Based on the abovementioned criteria as well as other quantitative assessment, enclosed the summary of my potential value investing candidates for United States:

BIG LOTS (BIG)

Big Lots, Inc. is the nation’s largest broadline closeout retailer, its operates retail stores that sell foods, home furnishings, furniture, merchandise, and other household items. By creating excitement with brand-name closeouts and bargains through a unique shopping experience, Big Lots meets the needs of customers by providing an assortment of merchandise including consumables, seasonal products, furniture, housewares, toys and gifts. Big Lots supports the communities it serves through the Big Lots Foundation, a charitable organization focused on four areas of need: hunger, housing, healthcare, and education.

I am generally very skeptical about bricks and mortar retailers. Nevertheless, this Company does possess good fundamentals – high ROE, EPS growth rate, low PE, low debt, etc. On another note, the share price has certainly run fair a bit. I may consider to pick up the stock at its support area of around 55-57.

The share price exhibits mild bearish-ness. Anticipating some support around 55-57.

EVERCORE (EVR)

Evercore Inc. operates as an investment banking company. It provides advisory services to multinational corporations on mergers, acquisitions, divestiture, restructuring and other corporate transactions. The company operates primarily in North America, Europe, South America and Asia. Evercore Inc., formerly known as Evercore Partners Inc., is based in New York, United States.

EVR will be looking to display strength as it nears its next earnings release, which is expected to be April 28, 2021. On that day, EVR is projected to report earnings of $2.63 per share, which would represent year-over-year growth of 117.36%. Meanwhile, the Zacks Consensus Estimate for revenue is projecting net sales of $541.36 million, up 25.01% from the year-ago period.

The company has very solid financials. Nevertheless, investment banking & securities business is generally a cyclical business.

I do not intend to chase on this company, as the share price has run far up although valuation metrics appear reasonable.

FEDERATED HERMES (FHI)

Federated Hermes is an investment manager headquartered in Pittsburgh, Pennsylvania, United States. Founded in 1955 and incorporated on October 18, 1957, the company manages $575.9 billion of customer assets, as of Dec. 31, 2019. 

Zacks Comments: One company value investors might notice is Federated Hermes (FHI). FHI is currently holding a Zacks Rank of #2 (Buy) and a Value grade of A. The stock has a Forward P/E ratio of 9.77. This compares to its industry’s average Forward P/E of 13.22. FHI’s Forward P/E has been as high as 11.98 and as low as 6.83, with a median of 9.70, all within the past year. Investors will also notice that FHI has a PEG ratio of 1.64. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company’s expected EPS growth rate. FHI’s PEG compares to its industry’s average PEG of 1.77. FHI’s PEG has been as high as 2.46 and as low as 0.69, with a median of 0.98, all within the past year. Value investors also love the P/S ratio, which is calculated by simply dividing a stock’s price with the company’s sales. Some people prefer this metric because sales are harder to manipulate on an income statement. This means it could be a truer performance indicator. FHI has a P/S ratio of 2.12. This compares to its industry’s average P/S of 2.79. These are only a few of the key metrics included in Federated Hermes’s strong Value grade, but they help show that the stock is likely undervalued right now. When factoring in the strength of its earnings outlook, FHI looks like an impressive value stock at the moment.

I like this. On an uptrend, with a resistance level expected around $38.

BEST BUY (BBY)

Best Buy is a leading retailer of technology products, services and solutions. The company offers expert service at an unbeatable price to the consumers, small business owners and educators, who visit stores, engage with Geek Squad Agents or use BestBuy.com or the Best Buy app. U.S. population lives within 15 minutes of a Best Buy store, and the company also has operations in Canada and Mexico, where Best Buy has a physical and online presence.

Another retailer. To be frank, not sure about the level of competition in the US. Not too keen to consider this particular company. With the re-opening of the economy and people start going out, would they still buy electronics? Yes they do but at a lower quantity. Moreover, margins are relatively thin for retailers.

Some strong resistance appearing around $124-125.

COMFORT SYSTEMS (FIT)

Comfort Systems USA, Inc. is a national provider of comprehensive heating, ventilation and air conditioning installation, maintenance, repair and replacement services. The Company operates primarily in the commercial and industrial HVAC markets, and perform most of their services within manufacturing plants, office buildings, retail centers, apartment complexes, and healthcare, education and government facilities. Comfort Systems USA merged with the best regional experts, and now provides nationwide reach through 36 subsidiary companies that are prepared to build, service or retrofit any mechanical, HVAC or electrical system. Whether the project is Design-Build or Plan and Spec, Comfort Systems USA can help from the design phase to construction with qualified professionals, quality products and an experienced contractor team.

Some interesting prospects in this sector – https://www.zacks.com/commentary/1369549/air-conditioner-heating-industry-to-thrive-4-stocks-in-focus and https://www.barrons.com/articles/hvac-and-cyclical-stocks-are-red-hot-investors-need-to-keep-cool-51619214021?mod=hp_columnists

The share price has run up fair a bit. May only consider when it retraces back to around $58.

DICK’S SPORTING GOODS (DKS)

DICK’S Sporting Goods, Inc. is a leading omni-channel sporting goods retailer offering an extensive assortment of authentic, high-quality sports equipment, apparel, footwear and accessories. The Company serving and inspiring athletes and outdoor enthusiasts to achieve their personal best through a blend of dedicated associates, in-store services and unique specialty shop-in-shops dedicated to Team Sports, Athletic Apparel, Golf, Lodge/Outdoor, Fitness and Footwear. DICK’S also owns and operates Golf Galaxy and Field & Stream specialty stores, as well as DICK’S Team Sports HQ, an all-in-one youth sports digital platform offering free league management services, mobile apps for scheduling, communications and live scorekeeping, custom uniforms and FanWear and access to donations and sponsorships. DICK’S offers its products through a content-rich eCommerce platform that is integrated with its store network and provides customers with the convenience and expertise of a 24-hour storefront.

This is a reopening play (people start buying sporting goods as they emerge from their home-lockdown). Recent upside in reopening-related stocks may have reflected the reopening potential. As such, share price would have run fair a bit. Personally, I will not consider reopening stocks that are currently trading higher than its pre-pandemic stock price.

It is currently trading higher than its pre-pandemic level

WILLIAMS-SONOMA (WSM)

Williams-Sonoma, Inc. is a specialty retailer of high-quality products for the home. These products, representing eight distinct merchandise strategies – Williams Sonoma, Pottery Barn, Pottery Barn Kids, West Elm, PBteen, Williams Sonoma Home, Rejuvenation, and Mark and Graham – are marketed through e-commerce websites, direct mail catalogs and retail stores. Williams-Sonoma, Inc. portfolio has been fueled by three areas of strategic investment: brand experimentation and innovation, for a best-in-class approach to multi-channel retail experiences; operational excellence across the enterprise, from quality product and sourcing, to efficient manufacturing and supply chain; and culture and corporate social responsibility, from commitments to foster women in leadership and embrace diversity, to a healthy impact on community and environment. Williams-Sonoma, Inc. is one of the United States’ largest e-commerce retailers with some of the best known and most beloved brands in home furnishings.

Would people still have time to cook or bake once the economy fully reopens?

Run fair a bit. I will not chase.

IES HOLDINGS (IESC)

IES Holdings, Inc. provides electrical contracting and maintenance services. The Company’s operating segment consists of Communications, Residential, Commercial & Industrial and Infrastructure Solutions. Communications segment is engaged in providing technology infrastructure services. Residential segment is a provider of electrical installation services. Commercial & Industrial segment is engaged in providing electrical design, construction and maintenance services. Infrastructure Solutions segment is engaged in providing electrical and mechanical solutions. It also provides data communication services which include the installation of wiring for computer networks and fiber optic telecommunications systems. IES Holdings, Inc., formerly known as Integrated Electrical Services, Inc., is headquartered in Houston, Texas.

“Despite the ongoing challenges presented by the COVID-19 pandemic, we are pleased with our overall results for the first quarter of fiscal 2021, as demand for our services remained strong,” said Jeffrey Gendell, Chairman and Chief Executive Officer. “Entering the new fiscal year, our top priorities remain the safety and health of our employees and serving the needs of our customers in what continues to be a challenging environment. While the pandemic continues to add uncertainty to our operations, we believe we are well positioned to meet these challenges and continue to grow the business. “Consolidated revenue for the first quarter of fiscal 2021 increased 14% over the prior year, led by significant growth in our Communications and Residential businesses, as well as the acquisition of businesses in our Residential and Infrastructure Solutions segments. Excluding the contribution of businesses acquired subsequent to the first quarter of fiscal 2020, our revenue increased 7% for the first quarter of fiscal 2021. Operating income for the first quarter of fiscal 2021 increased 28% over the prior year, despite the impact of rapidly escalating copper and other commodity prices, as well as higher prices for certain electrical component products used in our business.”

Higher demand for communication technology and greater networking as well as Biden’s infrastructure plans / national 5G initiatives will support the business resiliency of IESC.

The stock has run fair a bit. I may consider if it retraces to around $42-44

NU SKIN (NUS)

Nu Skin is a premier anti-aging company. The company’s anti-aging products feature the ageLOC line of products including ageLOC Tru Face Essence Ultra firming serum, the ageLOC TR90 weight management and body shaping system, ageLOC R2 nutritional supplement, and ageLOC Transformation daily skin care system.

Short MAs > long MAs. Will consider a long stock position at around $53-54.

EPLUS (PLUS)

ePlus inc. is a leading provider of technology solutions. ePlus enables organizations to optimize their IT infrastructure and supply chain processes by delivering world-class IT products from top manufacturers, professional services, flexible lease financing, proprietary software, and patented business methods. With the highest certifications from top technology partners and expertise in key technologies from data center to security, cloud, and collaboration, ePlus transforms IT from a cost center to a business enabler.

One thing about IT company is that no one is 100% sure what would happen if the economy has partially re-opened or fully re-opened. Would demand for IT services continue to be resilient moving forward?

Will the uptrend continue if the economy fully re-opens? Analyst target price is $102 (based on FINVIZ) – minimal room for upside?

DISCLAIMER: THIS IS NOT AN INVESTMENT OR TRADING ADVICE / ENDORSEMENT. PLEASE REFER TO GENERAL DISCLAIMER OF THIS BLOG. IF IN DOUBT – PLEASE CONSULT WITH YOUR LICENSED FINANCIAL PLANNER OR ADVISER.

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