Can We Get Much Higher: 4 Undervalued Stocks Near All Time High

James Dennin, Kapitall: Stocks are selling like Kanye tickets, with many trading near all-time highs. Are there any undervalued stocks left? 

Stock markets  leapt at Federal Reserve Chairman Ben Bernanke's announcement yesterday that the country would not begin tapering off its purchase of US bonds. A s a result of the move, stocks and emerging currencies are up as bond prices fell.

[Read more from Kapitall: 5 Undervalued Stocks Intriguing Institutional Investors]

It's no surprise then after a rather bullish summer that a number of stocks are trading at enormously high prices. There's the perpetually news-worthy Tesla Motors (TSLA), which is up over 400% for the year and hovering around an all-time high of $174 per share. Tesla was up almost 9% this morning alone (as of 10:50 am). Meanwhile  Netflix (NFLX) is trading over $300 per share right now. And don't even get us started on Priceline (PCLN), which passed the $1,000 mark yesterday, with room to grow before it hits its average target price.

With prices so high, is anything worth buying? We decided to run a screen on some of the best performing stocks so far this year that were trading at or near their all-time-highs as of this morning. We screened the roughly 160 companies from barchart.com for low price-to-equity ratios (P/E), in this case under 20. Then, because P/E ratios can be deflated for many reasons – we further screened our list based on a more rigorous stock screen,  the DuPont Breakdown. 

The DuPont Breakdown is a formula invented by the DuPont Corporation (DD) to refine and clarify the usefulness of  return on equity (ROE) when it is reported by companies. ROE is an extremely important valuation for many investors, because it is one of the simplest ways to measure the profit from an investment. However, ROE can also be a little bit too simple, because firms can always borrow money to inflate their results, making it seem like they're doing a better job of getting returns to their shareholders than they really are. 

The DuPont formula breaks down ROE into three components, so investors have a better idea of where a company's returns are coming from: operating efficiency, asset-use efficiency, and leverage. It does this by looking at profit margins, inventory turnover, and the equity multiplier, respectively. So, by virtue of the DuPont Breakdown:

ROE = (net income / sales) * (sales / assets) * (assets / shareholder's equity)   

By looking at low P/E ratios combined with encouraging DuPont breakdowns, we can get a better sense of which stocks are soaring, but also might be trading at something close to their fair value. We were left with four companies on our list. 

Click on the interactive chart to see data over time. 

These stocks have had a good year, but is there room for more growth? Use the interactive list below to begin your own analysis.

1. Dollar General Corporation ( DG): Operates as a discount retailer of general merchandise in the southern, southwestern, midwestern, and eastern United States. Market cap at $18.81B, most recent closing price at $57.92.

MRQ net profit margin at 5.59% vs. 5.42% y/y. MRQ sales/assets at 0.411 vs. 0.391 y/y. MRQ assets/equity at 2.045 vs. 2.1 y/y.  

 

2. The Kroger Co. ( KR): Operates as a retailer in the United States. Market cap at $20.89B, most recent closing price at $40.56.

MRQ net profit margin at 1.4% vs. 1.28% y/y. MRQ sales/assets at 0.928 vs. 0.923 y/y. MRQ assets/equity at 5.048 vs. 6.211 y/y.  
 

3. Scripps Networks Interactive, Inc. ( SNI): Operates as a lifestyle content and Internet search company in the United States and internationally. Market cap at $11.5B, most recent closing price at $78.18.

MRQ net profit margin at 24.01% vs. 23.69% y/y. MRQ sales/assets at 0.163 vs. 0.163 y/y. MRQ assets/equity at 2.234 vs. 2.508 y/y.
 

4. Whirlpool Corp. ( WHR): Engages in the manufacture and marketing of home appliances worldwide. Market cap at $11.95B, most recent closing price at $149.81.

MRQ net profit margin at 4.17% vs. 2.51% y/y. MRQ sales/assets at 0.311 vs. 0.309 y/y. MRQ assets/equity at 3.36 vs. 3.467 y/y.

 

 

( List compiled by James Dennin, a Kapitall writer. All-time-highs sourced from barchart.com. Analyst ratings sourced from Zacks Investment Research. All other data sourced from Finviz.)

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