Introduction
This is the Part 2 of the value with EPS growth screen. Part 1 covered Consumer Discretionary and Consumer Staples stocks and was posted here on June 10, 2019.
Screen Details
This screen focuses on undervaluation but also demands a history of EPS growth. It is unlikely that these conditions will yield deeply undervalued names, but it can identify ideas where not only the current market price may be below the value of the company, but there may also be significant value growth in the future.
The following general screen parameters were employed:
- Market capitalization = $30 m - $920 m
- P/E Ratio = 0 - 15
- P/B Ratio = 0 - 1
- EPS Growth = 11.99% and above
Learn about fundamental analysis of stocks here
The Screen Results
The screen was run on Jun 10, 2019 intra-day using the Fidelity screener. As you review these stocks, please ensure that your numbers agree with this screen. The screen yielded about 29 stocks.
We are grouping these stocks by sector to help you choose which stocks to research first based on your individual industry/sector exposure and allocation requirements. Here we look at the Industrials, Energy and Materials sectors. I will post other sectors in the coming days.
There are brief notes for each stock to help guide your research. Over time I will post reviews of some of these stocks on the VSG website as well. Feel free to comment below and let me know if there is a stock you want me to review first.
Stock | Company Name | p/e (Last Year Actual) | P/b | EPS Growth (5 yr Historical) |
|---|---|---|---|---|
ARCB | ArcBest Corp | 6.60 | 0.90 | 33.59% |
CVTI | Covenant Transportation Group | 6.31 | 0.81 | 45.72% |
LDL | Lydall Inc. | 8.13 | 0.93 | 12.12% |
MESA | Mesa Air Group | 7.23 | 0.69 | 17.18% |
SND | Smart Sand Inc | 3.29 | 0.55 | 15.90% |
ZEUS | Olympic Steel Inc | 4.41 | 0.46 | 33.72% |
Notes and Observations
- ARCB: ArcBest provide trucking services (freight transportation, LTL, brokerage, etc). Due to trade war effects, we have seen the freight rates decline for the last 6 consecutive months with some large truckers such as NEMF and Falcon Transport recently filing for bankruptcy protection. ArcBest is one of the stronger operators in a distressed industry, and could be a great cyclical play. Adding to the VSG Watchlist.
- CVTI: Trucking is an industry under pressure with many small operators going bankrupt recently. Covenant appears to be holding out well with a robust balance sheet and solid P&L. It is stock/business worth watching.
- LDL: Lydall makes filtration and insulation products for automotive industry. Its financials appear to be robust and the valuation is attractive. I want to look deeper and I am adding LDL to the VSG Watchlist.
- MESA: Mesa Air Group is a regional airline with agreements with American Airlines and United Airlines. The liquidity of the company is concerning with a current ratio at 0.71. However, the company has increased this steadily over the last 3 years and it has also increased its shareholder's equity consistently over the last 3 years. This could be a sleeper stock ready to come into its own.
- SND: Smart Sand Inc supplies industrial sands to oil and gas fracking industry. This, therefore is driven by the oil price cycle, which is currently highly volatile and ebbing. Valuation is attractive and this could be a good cyclical picks and shovel play.
- ZEUS: The company is seeing strong top line growth and continues to execute and grow with acquisitions. Margins are a bit suppressed due to lower steel prices. Investing in commodity businesses are always prone to commodity price volatility and this keeps the valuations down. The trade war may also be causing the investors to be hesitant. Olympic Steel appears to be undervalued and it will be added to the VSG Watch list.
Ending Note
Many of the stocks in this list are in the industries affected by the tariffs, trade war and reduced global trade. Usually cyclicality causes the weaker players to exit the industry, so even if the industry may shrink in the intermediate term, the stronger companies are likely to end up with increased market share and improved fundamentals.
Of these 6 stocks, I consider ARCB, LDL and ZEUS to be intriguing enough in terms of their valuation and fundamentals to add to the VSG Watchlist. Please do your own due diligence.