Value Stock Ideas
3 more stock ideas for you to consider following the previous value stocks I presented earlier.
LECO, MLR and SSD. I felt these companies would be pretty good picks if they drop down to my desired margin of safety but until then, they will have to be monitored occasionally. I immediately liked LECO and upon some further number crunching, it looks to be a good one to add to my watchlist.
Lincoln Electric Holdings (LECO)
Lincoln Electric is a full-line manufacturer and reseller of welding and cutting products. Welding products include welding power sources, wire feeding systems, robotic welding packages, fume extraction equipment, consumable electrodes and fluxes. The Company’s welding product offering also includes regulators and torches used in oxy-fuel welding and cutting.
Current Price: $44.80
DCF Valuation: $41.79 – $55.51 (after adjustments to FCF)
Graham Formula: $42.06
Competitor Comparison: Current PE is a higher than the industry and most of its competitors. Adjusting gives a fair value of $32.58
Comments: The consistency of performance and FCF immediately stood out for LECO. The company has some great fundamentals.
- has been FCF positive for the past 10 years
- has been FCF positive every quarter for the past 20 quarters except Q1 of 2009
- very healthy balance sheet
- consistent inventory turnover
- consistent margins even in recession
- consistent CROIC of 14.4%
- converts 7c of sales into FCF. A company that converts over 5c is a cash generating machine.
- I’m not a dividend investor but the company has increased and payed out distributions for over 10 years
- normalized FCF to debt ratio of mid to high 20%
- seems to be a good company to research further
Miller Industries (MLR)
Miller Industries is a manufacturer of vehicle towing and recovery equipment. It manufactures the bodies of wreckers and car carriers, which are installed on truck chassis manufactured by third parties. It also manufactures a line of transport trailers.
I’m not exactly sure about the economics and moat of the business but from the numbers and comparisons, MLR would have been a very cheap company to pick up when it hovering around the $5 mark.
Sales took a huge hit during the recession but the company has reduced debt by enormous leaps and bounds.
Current Price: $9.08
DCF Valuation: $11.53
Graham Formula: $14.16
- 15% discount rate with 0% growth assumptions based on low FCF numbers still produces an intrinsic value above the current price.
- company has been FCF for the past 5 years but growth in FCF is negligible
- Cyclical. Therefore not a consistent company but can be profitable if you can wait until the downturn to pick up shares.
- Converts about 4c of every $1 into FCF. Average.
- Current 21% margin of safety isn’t enough. Would like to see at least 50%.
- Not exactly a buy and hold investment. More like an investment that was cheap and should be sold when it reaches intrinsic value.
Simpson Manufacturing (SSD)
Simpson Manufacturing Co., Inc. is primarily a holding company. Through its subsidiary, Simpson Strong-Tie Company (SST), the Company designs, engineers and manufactures wood-to-wood, wood-to-concrete and wood-to-masonry connectors, SST Quik Drive screw fastening systems and collated screws, stainless steel fasteners, and pre-fabricated shear walls.
SST Anchor Systems offers a line of adhesives, mechanical anchors, carbide drill bits and powder actuated tools for concrete, masonry and steel. SST is the Company’s connector products segment.
The Company’s subsidiary, Simpson Dura-Vent Company, Inc. (SDV), designs, engineers and manufactures venting systems for gas, wood, oil, pellet and other alternative fuel burning appliances. SDV is the Company’s venting products segment. SST’s Anchor Systems product line is included in the connector product segment.
Current Price: $29.41
DCF Valuation: $34.10 with 8% growth and 9% discount rate since the company is a consistent performer.
Graham Formula: $36.37 (normalized the EPS growth rate and ignored one time downturn)
Competitor Comparison: Metrics compared to competitors indicates that SSD is selling at a premium.
- Able to generate good FCF in tough environment
- FCF positive for the past 10 years
- healthy balance sheet
- consistent CROIC above 10%
- converts roughly 9c of every $1 into FCF. Very good.
- low debt
- good margins
- bad point is that sales have been declining since 2006
No positions in any stocks mentioned.