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Stocks Under $10 With DavidPeltier

Adding Sallie Mae to Our Bullpen

By David Peltier | 08/23/16 - 11:01 AM EDT
Stocks in Focus: SLM, CTRL

After you receive this Alert, we will add SLM (SLM:Nasdaq) to the Bullpen. The stock is up 12% year to date and recently changed hands around $7.31. That said, we believe more upside is possible, as the company offers growth at an attractive price.

Investors are probably more familiar with the firm as Sallie Mae, a leading private student loan provider. Management posted better-than-expected quarterly results last month. SLM earned $0.12 a share in the second quarter, as revenue increased 26% from the previous year to $212.8 million. Loan origination increased 10% year over year in the period and is expected to total $4.6 billion in 2016. The net interest margin also improved 33 basis points from the previous year, to 5.84%.

The company is expected to earn $0.52 a share in 2016 and trades at 14.1x that figure, which is a 24% discount to the broader market. The stock is also trading at a discount to the 26% average annual earnings growth that management are expected to post over the next two years.

It's also worth noting that Wall Street is starting to circle its support around SLM. Citigroup initiated coverage of the company with a Buy rating last month and Goldman Sachs placed the stock on its Conviction Buy List on Aug. 10. Specifically, Goldman believes the company is uniquely leveraged to higher short-term interest rates.

Volume will likely be light in the next two weeks, as traders are heading to the beach before the end of the summer. This should lead to increased trading volatility and we'd consider initiated a position in SLM under $7.

P.S. SLM will replace Control4 (CTRL:Nasdaq) in the Bullpen. The shares has moved up with us and recently changed hands around $11.42.

Regards,

David Peltier
Portfolio Manager, Stock Under $10

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Stocks Under $10 Holdings

Holdings 1

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Symbol % Portfolio
Weighting
Industry
CAA 4.06% Materials & Construction
JIVE 2.15% Computer Software & Services
Holdings 2

Stocks we would buy on a pullback

Symbol % Portfolio
Weighting
Industry
BLDR 2.62% Materials & Construction
BTN 5.05% Consumer Durables
DTLK 2.22% Computer Hardware
HBAN 3.86% Banking
IWM 17.08% Financial Services
KTOS 2.67% Diversified Services
MDR 2.77% Energy
ON 4.53% Electronics
OSUR 2.71% Health Services
SNV 4.03% Banking
SONS 3.21% Telecomm
TXMD 3.22% Drugs
UNIS 1.72% Health Services
ZIXI 2.72%
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Symbol % Portfolio
Weighting
Industry
AUY 1.33% Metals & Mining
CECE 1.69% Industrial