As investors clamored for anything tech-related in the recent market rally, a handful of stocks with some solid growth prospects got left behind. But the good news is that these shares now look very cheap in comparison. Ball ( BLL), a maker of metal and plastic packaging, Oshkosh Truck ( OSK), a maker of specialty trucks, and Patterson Dental ( PDCO), which distributes dental supplies, all missed the boat over the last three months as investors snapped up more glamorous tech names. Yet all three companies have solid fundamentals and are positioned to do well going forward. Ball, which has fallen more than 6% since the broader market started to rally three months ago, reported a 14% rise in net earnings and a 22% jump in sales during the first quarter. It also said it expects earnings to exceed $3.60 this year, up almost 30% from last year although slightly below analysts' estimates. So why hasn't the stock joined the party? Some analysts say a large shareholder recently dumped shares, which has made a big impact on the stock price because the firm has such a small float. Others say the stock is a victim of profit-taking after recent gains. "The whole packaging sector has been seeing a sector rotation because it's been a great defensive sector during the recession," said one analyst whose firm has an investment-banking relationship with Ball. "But this is a good, well-run company with a great management team." Ball, which trades at just 0.6 times sales, has grown revenue by 8% per year over the past five years. Oshkosh Truck also has lagged behind the market. While Oshkosh recently missed out on a big contract from the U.S. army and sounded a cautious note in its second-quarter conference call about municipal spending on fire trucks and garbage trucks, the firm did reiterate that it expects earnings of $3.70 a share in fiscal 2003, up more than 9% from $3.38 in the prior year.
"I think it's quite cheap," said Richard Leader, an analyst at Burnham Securities. Leader owns shares, but Burnham has no investment-banking relationship with the firm. "Everyone wants immediate performance, and this stock doesn't offer that, but at this price, I think it's a good bargain." Oshkosh posted a 16% jump in net income in its fiscal second quarter and said revenue increased by 9%. The stock, which is up just 1.7% since the broader market bottomed on March 12, trades at 0.5 times sales and has grown revenue at a 16% clip per year over the last five years. Another stock that missed out on the recent advance is Patterson Dental. The company said net income rose 22% in its fiscal fourth quarter on a 12% jump in sales. For fiscal year 2004, the firm projected in-line earnings growth of almost 19% and said sales should rise 11% to 13%. Still, the stock has basically gone nowhere over the past three months. "The company's view of this year remains very constructive," noted Lawrence Marsh, an analyst at Lehman Brothers. Lehman makes a market in Patterson's shares. Patterson has said the dental market should grow by 7% to 8% over time and that it intends to grow 4% faster than that through a combination of internal gains and acquisitions, according to Marsh, who has an overweight rating on the stock. The firm also intends to grow its market share in the U.S. to between 35% and 40% from a current 29%, as it continues to snap up smaller players, Marsh said. At 25 times trailing earnings and 1.8 times sales, Patterson isn't the cheapest stock on the block, but it does have very little debt, lots of cash and has grown revenue 16% per year over the past five years. Of course, just because stocks look undervalued doesn't mean they won't stay that way for a long time. If the economy really does begin to show improvement over the next few months, investors could continue to flock to more cyclical names regardless of how expensive they may be. Then again, if the big economic rebound fails to materialize, these stocks could reap handsome rewards.