2 Undervalued Stocks That Will Bounce Back in 2017

Universal Forest Products (UFPI) and Movado (MOV) are two companies whose shares can be bought at bargain prices right now. Both companies are fundamentally strong, but their shares are oversold. 

Universal Forest Products makes everything from decking to prefabricated homes and has been harvesting growth from acquisitions and new products. Thanks to more profitable products and a tight rein on expenses, Universal's free cash flow has grown at an impressive clip in the past few years.

CEO Matthew Missad has been stockpiling profitable businesses. Universal acquired seven companies in the past two years. After each acquisition, Universal improves the acquired products and cuts their costs. These adopted product lines often need money for better factories as well as for marketing and building inventory -- all of which drain cash. But once the investments are made, the cash flows fall to the bottom line.

Universal makes efficient use of its growing pile of free cash to increase profits in various ways. The company used cash from operations to cover daily business costs like buying inventory, but took of advantage of low interest rates to finance acquisitions primarily with debt. That created a hefty cash cushion to more than cover operating costs. In the past two quarters, Universal's free cash flow grew 64%, money that can now be used to pay down debt or to buy another company.

Universal benefits from an upturn not only in residential construction, but also in multifamily construction and home-improvement projects. Most of its sales are domestic, with more than one-third to retailers and the balance split between construction and industrial customers.

Universal's largest customer, Home Depot, generated 17% of total sales and has enjoyed 17 straight quarters of increasing sales thanks to consumers' insatiable demand for remodeling supplies. Multifamily construction, which industry source Freddie Mac expects will continue growing this year and next, will feed demand for Universal's concrete-forming products.

If you liked this article you might like

Basic Materials Basically Are a Good Place to Be

Cash Flow Is a Company's Life Blood: These 6 Stocks Fit the Bill

Timber-r-r-r ... Lumber Plays Getting Felled

Commodities Rebound May Get a Better Bounce Off Trading Floor