The Hidden Values Alert portfolio on Stockpickr keeps track of stocks with market caps less than $3 billion that have high return on equity, low debt and consistent earnings and revenue. In other words: good, cheap, small-cap companies.
The portfolio currently includes 15 stocks and commentary, and we've featured the commentary on two of them below,
( KSWS) and
K-Swiss: Sensible Shoes
KSWS has a very healthy balance sheet with $197 million in cash and no debt. The company's net profit margin over the past five years is 13%, which is almost double the industry average. Management has done an outstanding job, as return on equity over the past five years averages more than 29% per annum. KSWS has been expanding in the international markets, where growth has been strong. The company recently formed a distribution relationship in Japan that should fuel its Asian business. KSWS is a good company and a price of $29 or less per share represents a very good value. If KSWS can grow earnings at only 15% per annum (a margin of safety that is 65% lower than its past-five-year EPS growth rate of 43% per annum) and maintain a P/E of 13 (a margin of safety that is 7% lower than the current P/E of 14), the stock will reward investors handsomely over the next five years."
K-Swiss also appears in
portfolio, which offers smallcap stocks with little analyst coverage that have healthy free cash flow.
Landstar Looks Secure
Landstar System has been able to achieve a return on equity (ROE) in the mid 40 percent range over the past three years. In 2006, ROE was an eye-popping 47 percent! They have been able to do this with a long-term debt/total capital ratio of just 17 percent.LSTR has been a big buyer of its shares. Since 2002 it has bought back over 9 million shares, decreasing the shares outstanding by over 13 percent. Net profit margins also increased over the past five years from 3.3 percent to 4.5 percent. LSTR is a cash-generating machine. At the end of 2006, the company had $288 million in free cash flow. Another way of looking at it: 11.5 percent of revenue turned into cash that went straight to the bottom line. If the economy does slip into a recession, LSTR should weather the storm due to its non-asset-based business model. LSTR is a good company, and a price of $41 or less per share represents a very good value. If LSTR can grow earnings at only 16 percent per annum (a margin of safety that is 45 percent lower than its past five-year EPS growth rate of 29 percent per annum) and maintain a P/E of 18, the stock will reward investors handsomely through the next five years.
- Five-year average EPS 29%
- Five-year average revenue growth 17%
- ROE 49%
- Five-year P/E high 33
- Five-year P/E low 12
- 52-week high $49.01
- 52-week low $37.75
Landstar is also in the
portfolio of stocks that will do well if the economy is heading for a soft landing rather than a recession. Other stocks in that portfolio include
Finally, Landstar also appeared in the
that were mentioned in
March 19 issue. Other stocks in that group include
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