20 Stocks Round 2

Written by

Jae Jun

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Well it seems like most of you like the quick short stock analysis style. Although I don’t get into deep details, you should be able to see a pattern of the  specific things I look for in a company at first glance.

Here is the next round of 20. When I’ve completed going through the entire 200 list, I’ll put up a nice and neat spreadsheet so that you can track it yourself. For now, let’s just get rolling.

20 Stocks Round 2

INSU: another industrial company in the list. When economy is good, these companies do good business. Cyclical. Requires high capital expenditure and long term debt is increasing. Share count has increased consistently as well.

SHEN : telecomm network company. High fixed capex. big increases in debt. big drop in margins. large acquisition leading to high intangibles or is it from spectrum holdings?

LL: lumber liquidators. specialty store. FCF losses. Owner earnings would be the better way to analyze. Cash flow from other is quite high. inventory turnover and age of inventory keeps increasing.

RENT: latest fiscal year shows increase in revenue and drop in COGS, but ended the year at a loss. Low moat business. Pass.

ATNI: makes a lot of money but doesnt looks like company will find it hard to earn more than the cost of capital. High fixed capex. EPV < Repr meaning the company does not utilize its assets. Issued a lot of debt recently.

AIRT: Very cheap based on numbers. P/tangBV = 0.7 but no opportunity for growth. Largest company is fedex. Trading below NCAV. Value trap imo.

UEIC: Interesting potential. No moat OEM business. Large increase in net receivables and inventory but looks like sales picked up. Need to look at detailed inventory. New short term debt with no LT debt could mean that they had a big order and needed financing to make the order. Gross margin of 31.5%, EBIT of 5.5%

HCSG: EPV > 2x Repr means there is a possibility of a moat, but the current price seems too high. F score of 7 shows that company is healthy. FCF past 5 yr averages drastically lower than past 10 yr avg but other ratios have increased by 1% or so. P/FCF is very high. Intrinsic value looks much lower. Pass

AACC: classified as financial company. Outside of circle of competence.

DDE: Don’t want to help gambling companies.

NCI: Margins declined for 3 years. Due to recession, consulting business not good. Big drop on cash. Only $0.4m left compared to $49m in 2009. For consulting, liabilities make up 47% of balance sheet. Days Payable Outstanding is 8. Very likely leading to liquidity issue.

MED: Good margins for a distributor. Lots of SG&A involved with business. Verify they are viable. Margin trend has been increasing 2009 and up. Increasing share count. Big increases in cash. Very healthy. Shareholders equity increased 10 yrs. FCF +ve from 2008-2009. Looks like a great turnaround. Increase in DPO and inventory turnover. However, there is no moat.

PRFT: Ignoring 2009, margins have dropped nearly every year. Along with tight margins, this is a difficult business to run. Acquisitions every year. Pass.

SUPX: No long term debt. Good margins for semiconductor equipment manufacturer. Constantly needs to update products to keep up to date with new processes. FCF matches owner earnings well which means the financial is very clean and easy to understand. 5yr metrics are worse than 10yr. Mostly likely due to rapid changes in industry. Difficult industry.

AAON: Serves commercial market for air cons and replacement parts. Did well in recession but going down for 2 years. Looks like down cycle where cycle lasts for ~3years. Looks well managed. Repays debt, no LT debt, buys back shares. Not too sure about buying shares at high prices though.

LDR: ROE, ROA, ROIC, CROIC in constant decline. Company has a liquidity issue. Cash conversion cycle is bad for the balance sheet it has.

EXAC: top line growth but doesnt convert to bottom line. FCF very inconsistent. Large increase in long term debt. 1% CROIC.

DRIV: Went from average of 12% Operating margin to 3.6%. Huge increase in LT debt. From $8.8m to $354m. Not much growth in shareholders equity since 2007. New acquisitions every year. Lots of intangibles.

NPK: Accounting is very straight. Easy to understand. Business has greatly improved since 2006-2007. Getting towards high operating efficiency. Did well even in recession and current year. Good margins. Large increase in receivables and inventory from 2006-2007 looks to have been solved now. Solvent with no short term or long term debt. Retained earnings and shareholders equity has increased for 10 straight years. Annual dividend of 8%??? Valuation looks excellent.

QLGC: Cyclical business but profitable. Growth is limited but it looks like the business is solid. Good balance sheet, 5yr ROE 15.3% and 10yr ROE is 16.7%. EPV is > 2.5x Net repro value which suggests that a moat does exist. Hard to predict earnings or fcf because it is erractic but worth another look.

KNX: Truck logitics company. Very erratic. Hard to value. Dependent on gas prices and economy. Pass.

The two that caught my eye is MED and NPK. I especially like NPK but wish it would go down more.

Disclosure: None.

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