5 Contrarian Stock Picks With Strong Growth Outlooks and Share Buybacks

NEW YORK (TheStreet) -- The stock market is repeatedly scoring new highs this year in the face of high valuations, geopolitical risks and worries over the Federal Reserve lifting interest rates sooner than expected. There is no shortage of talking heads telling investors to sell for fear the end is near. CNN Money's Fear & Greed Index shows investors are neutral -- neither fearful or greedy -- suggesting investors are still far from feeling the euphoria typically seen at market tops. 

The stock market may be overpriced based on the cyclically adjusted-price-earnings (CAPE), price-to-sales, stock market capitalization-to-GDP and other ratios. But you can still find stocks trading at bargain prices with good prospects for sales and earnings growth driven by new product offerings, store openings and backlogs. On top of that they are repurchasing shares. Buybacks support share prices by creating a floor for demand while increasing earnings per share as profits are divided among fewer shares. Here's a look at five stocks that meet all these coveted criteria.

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1. General Electric (GE) is trading at slightly lower price-to-earnings and price-to-book value ratio compared with both its sector and the S&P 500  (SPY) while paying an attractive 3.3% dividend yield that's larger than both its peers' and the market. It has about $11.6 billion remaining in its share buyback program.

General Electric stands to benefit from an improving credit market and global demand for infrastructure development. The diversified manufacturers makes everything from light bulbs to home appliances to jet engines and power-generating equipment. The conglomerate's backlog climbed to $246 billion at the end of the second quarter from $223 billion in year-ago period owing to strong growth in its equipment and service businesses. In June, General Electric made a $16.9 billion deal to acquire the power and grid division of Alstom, which is expected to close at the end of this year.

GE is the second-largest stock holding in hedge fund titan Ray Dalio's portfolio behind Apple  (AAPL) . The Bridgewater Associates founder boosted his stake in General Electric more than 800% in the second quarter, according to GuruFocus.com. Warren Buffett and George Soros added to their General Electric positions in the fourth quarter while David Dreman added in the first quarter, according to GuruFocus.com.

2. GNC (GNC)  trades at only 13.6 times earnings vs. 28 for its sector and 18 for the S&P 500. In the first half of this year, it opened 179 new stores in the U.S. and overseas including 17 store-within-a store locations at Rite Aid (RAD) . In addition, it acquired nine stores in Ireland in April. Earnings and sales are expected to be flat this year compared with 2013. But 2015 earnings are expected to rise 12% with 5% sales growth, according to analysts polled by Thomson Reuters Knowledge. It also pays a 1.7% dividend.

The nutritional supplements retailer announced in mid-August that it plans to buy back $500 million of its shares over the next two years. GNC Chairman Michael Hines, bought 30,000 shares on Aug. 18, increasing his stake to 37,118 shares. Just two weeks before that CEO Michael Archbold bought 175,000 shares. Insiders sell for many reasons but buy when they believe shares are undervalued and that the company's outlook is improving.

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3. Las Vegas Sands (LVS)  kicked off a $2 billion buyback program in June 2013 and has a target of buying back at least $75 million worth of shares monthly. In the second quarter, it returned $320 million to its investors, far surpassing its target. The casino giant has spent $1.7 billion on share repurchases under its current buyback program so far. It also raised its quarterly 43% year over year to $0.50 a share for a current yield of nearly 3%.

The stock trades at a price-to-earnings ratio of 21 times compared with 28 for its sector. The company is projected to grow 2014 sales nearly 13% over last year and earnings by 28%, according to Thomson Reuters Knowledge.

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4. Target's  (TGT) current $5 billion buyback program started in early 2012. In the second quarter, it repurchased nearly $34 million worth of shares. It also increased its dividend 18% over last year. It's trading at 25 times earnings versus 28 for its sector while paying a dividend yield of more than 3% compared with 1.4% for its peers. A price-to-revenue ratio of 0.52 is sharply lower than its peers' 2.2 and the S&P's 1.8.

2014 earnings are expected to sink 26% over last year while revenue dips 1% because of expenses related to the security breach, according to Thomson Reuters Knowledge.

But the market hasn't fully priced in growth from new store openings and new product lines. The Minneapolis-based retail chain opened three new stores in Canada in August after opening a 124 stores and three distribution centers in our neighbor to the north last year. In late July, the company opened its first new TargetExpress, which is about one-sixth the size of its regular stores, in the Twin Cities. Some 35,000 new products will be introduced this fall, Target's chief merchandising and supply chain officer said during the second-quarter earnings call. It's selling exclusive products from Sam & Libby, Method, Seventh Generation, designer Chris March and other brands.

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5. Chicago Bridge & Iron  (CBI)   repurchased $67 million of its shares in the first half of the year. It announced in May that it plans to buy back 10.8 million shares, about 10% of its float, through the end of October 2015. It's trading at less than 13 times earnings versus 20 for its sector. A price-to-sales ratio of 0.56 is a bargain compared to its peers, trading at 1.6 times sales. It pays a 0.44% dividend.

2014 earnings are expected to grow nearly 22% year on year as sales jump 18%, according to Thomson Reuters Knowledge. The developer of energy infrastructure reported  $4.2 billion in contract awards in the second quarter -- more than double the $1.8 billion in contracts last year. The backlog amounts to 2.5 times current revenue. It has a good chance of winning more awards from liquefied natural gas, chemical production, power plants and other infrastructure projects, D.A. Davidson & Co. wrote in a report July 25.

At the time of publication, the author is long GE, GNC, LVS, TGT and CBI.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.


 TheStreet Ratings team rates TARGET CORP as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation: 

"We rate TARGET CORP (TGT) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and good cash flow from operations. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself."  

You can view the full analysis from the report here: TGT Ratings Report

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