A lot has happened since I last wrote… Mitt Romney chose Paul Ryan to be his running mate. The European Union seems to have gotten its act together, financially speaking. Facebook reached a new low and Amazon reached a new high. Even the auto market has maintained most of its steam in the wake of the European Crisis. In conjunction with this mostly good news, the stock market has also risen to new heights—following its usual trajectory during an election year.
So what does this mean for the future of the stock market? Well, I will not pretend to know what will happen with the stock market overall, but there are still plenty of stocks out there that I think will provide favorable returns for those who buy individual stocks. Some of these names will be familiar, some not. Bargains come in all shapes and sizes (see Ken Fisher’s Debunkery for more on that).
In regards to the aforementioned “bargains,” let’s start with the more familiar. At a price-to-sales ratio of 0.3 and a dividend of 3%, Dell is my favorite pick out of all the bottom-dwellers. There is fear that Dell might be a “value trap” and this very well could be, although, I believe Black Friday and Christmas will serve as important catalysts. As I type from my Alienware computer (Dell-owned), I remember bargain-hunting for it around the same time as the holidays were fast-approaching. Also, there is a high margin of safety in that Dell is largely considered a value trap. Value traps may trap buyers, but usually don’t go any lower. In the end, the catalysts may prove false, but the stock should not depreciate much from this price.
The next in the “familiar” category, is Nvidia. Now, this may not be familiar to all, but, computer geeks should be plenty familiar with this company. Although Nvidia was snubbed by Amazon, its new chips are used in Google’s Nexus 7 and will be used in Microsoft’s new Surface tablet. With around $5/share in cash, the company is effectively trading at near 11x earnings, for a company that usually trades around 14x earnings.
In the “unfamiliar” category, the company I’d like to start with is Heska. This company operates in the veterinary market, selling diagnostic equipment and other products to veterinary clinics. This is a growing market and its growth is expected to continue well into the future. The company trades with no debt, 16% of the share price is accounted for by cash, and it has a dividend of 4.60%. As a smaller company, it is still speculative, and will require more due diligence than the more familiar companies. However, there is more room for reward here if the company can successfully navigate the next few years.
Last, and also in the unfamiliar category, is Atrion Corporation. This company has shown tremendous growth potential in a growing market— healthcare. The company manufactures cardiovascular, fluid delivery, and ophthalmic devices. It has also ranked highly over the years in Value Line’s “earnings persistence.” The company has a small dividend (1%), positive cash per share, no debt, and boasts a profit margin of 20%. Although the company has faced some headwinds as of late, it seems poised to perform well in the coming years. This is another long-term growth story that will require proper due diligence.
In the face of what else is to come, be assured that there are still plenty of stocks out there whose performance will have nothing to do with what else is to come. These are just a few of them that you might be interested in. Feel free to mention some more that you think offer a better opportunity for potential price appreciation over the next few years.
Until next time…
The Poor Investor