This week I bring you a handful of stocks that have shown meaningful growth in the past five years and yet aren’t too expensive. Using software from Value Line, I screened for stocks with the following characteristics:
■ A market value of $250 million or more, with earnings of at least $1 a share (to provide some solidity).
■ Growth averaging 10 percent per year or better in both cash flow and book value (corporate net worth per share) over the past five years.
■ A stock price less than 15 times earnings (indicating out-of-favor stocks that might be bargains).
This is a pretty conventional growth-and-value screen, but with a little twist. I deliberately didn’t use growth in earnings per share as a criterion. Earnings are volatile and can be manipulated fairly easily. The growth criteria I used instead — growth in sales and in book value — are a bit more stable.
BHP Billiton Ltd.
The world’s largest mining company, it extracts iron, nickel, copper, coal, diamonds, and other metals, and drills for oil.
Miners are severely out of favor. Producers of raw materials usually do better in an inflationary climate. Today, many countries are trying to stave off deflation. Also, investors have watched China’s growth slow. They fear it will slow further. China is a huge consumer of raw materials.
I think the risk-reward ratio on BHP Billiton is good, and I own it for a couple of clients. The past five years, the company has shown 19 percent annual book-value growth, on average, and 16 percent sales growth.
World Fuel Services Corp.
This company provides fuel, maps, and other support services to the operators of planes, ships, and oil trucks. It’s a business simple in concept but difficult in execution. World Fuel has executed well: 20 percent average growth in book value and 17 percent annual increases in sales the past five years.
You might think barriers to entry would be low in this business, but World Fuel’s knowledge and contacts give it an edge, in my opinion. I like the stock at the current price of about $38 a share, which equates to 14 times earnings.
Would you believe Apple shows a 47 percent rate of book-value growth and a 39 percent pace of sales growth over the past five years? Those are astounding figures. Investors obviously think such growth is unsustainable; why else do they accord Apple a valuation of only 12 times earnings? My judgment is that Apple could slow down considerably and still be an attractively fast grower. At a 12 multiple, you don’t need the company to keep performing miracles, just to do well. Meanwhile, you get a superb balance sheet ($42 billion in cash and near-cash) and a popular product lineup.
Valmont makes lighting poles, communications towers, and irrigation equipment. It has increased its book value at a 21 percent clip the past five years. I believe the United States is in a sustained economic recovery. Valmont’s businesses depend on the willingness of buyers to do capital spending. The coming year will provide a favorable climate for that.
Hawaiian Holdings Inc.
Probably my most speculative pick. The company is the parent to Hawaiian Airlines.
Airline stocks are volatile and prone to disruption by price wars, labor strife, or increases in the price of jet fuel.
Be that as it may, I like Hawaiian Holdings. I think tourism from the mainland to Hawaii will increase in the next couple of years. And Hawaiian was sensible to strike up an alliance with China Airlines.
Over the past five years, the book value at Hawaiian Holdings has increased at a 21 percent clip. Yet the stock sells for a bargain-basement valuation of eight times earnings.John Dorfman is chairman of Thunderstorm Capital in Boston. His firm or clients may own or trade securities discussed in this column.