Here are six examples of stocks with these characteristics, along with low downside risk profiles (according to various other fundamental, technical, and sentiment measures):
• Avnet (AVT). This Phoenix-based maker of electronic components has a P/E of only 8, but projected five-year average annual growth of 16%—essentially, growth that’s double the current price. The company beat earnings estimates by almost 19% in the most recent quarter. Further, in the last 90 days, analysts’ earnings estimates for 2022 have increased 15% and for 2023, 17%. Avnet’s current stock price is about the same as it was five years ago, but over that period, EPS has gone from -$2 per share to about $5. Sales have been fairly flat, rising only 12% total over five years. As a result, analysts seem to have a show-me attitude regarding Avnet. But by the time sales improve, currently strong fundamentals might have driven the price much higher. The dividend yield is quite high at about 2.7%.
• Rush Enterprises (RUSHA). This national retailer of commercial vehicles (mainly trucks), based in New Braunfels, Texas, has a P/E of 11, yet earnings have grown more than 15% over the past year. For the most recent quarter, the company posted an upside EPS surprise of 20%. According to Yahoo Finance, over the last 90 days, earnings estimates have increased 9% for this year and for 2023, 10%. The stock price in late April was about $48, roughly where it was a year ago, and the average one-year target is $66, or 37% higher. The dividend yield was about 1.6%.
• ACCO Brands (ACCO), a suburban Chicago manufacturer of office and school supplies. The P/E is 7, and its projected annual growth is 9%. The most recent quarter surprised on the upside by 20%. The dividend yield is high at nearly 4%, and the earnings trend is good. Over the last 90 days, earnings estimates for 2022 have edged upward. The stock price was only $7.42 in late April. Five years ago, it was $11, but the current average one-year target is $14.
• Griffon (GFF). This New York City-headquartered multinational conglomerate for building products and defense electronics has P/E of 15 and a growth rate of 17%. The recent quarter surprised on the upside by more than 200%. In the last 90 days, earnings estimates for this year have increased about 15% and for 2023, about 16%. As of late April, it was trading at about $18, lower than it was five years ago and down 28% over the last six months. But the average one-year target is $36, or 100% higher. The dividend yield is about 2%.
• Quanex (NX), a Houston-based manufacturer of building products. Quanex’s P/E is 11, with an earnings growth rate of 12%. The most recent quarter surprised on the upside by more than 32%. The dividend yield is 1.6%, and the earnings trend is good: In the last 90 days, estimates for this year have been raised 9% and for 2023, 10%. In late April, stock was trading at $21, lower than it was five years ago, and down more than 5% over the last six months. The average one-year target is $32—52% higher than the current price.
• Greif (GEF), a Delaware, Ohio-based maker of packaging products. The P/E is 7.5, and so is the earnings growth rate. The most recent quarter surprised on the upside by more than 7%. Greif’s dividend is huge at 4.6%, with a good earnings trend. Over the last 90 days, earnings estimates for this year have been raised 7% and for next year, 8%. In late April, the stock was trading at about $60—down by more than 11% over the past six months. The average one-year target is $68.
Deglobalization
The nascent deglobalization trend, a reaction to worldwide supply chain disruption and increasing global political risk, could benefit small companies significantly. With large companies siting more manufacturing on American soil (e.g., Intel’s new plant in Ohio), they’ll probably be developing increasingly domestic supply chains, creating more business for more small companies.
If this trend continues, it could move the revenue needle for some small caps.
Dave Sheaff Gilreath, CFP, is a founding principal and CIO of Innovative Portfolios, an institutional money management firm, and of Sheaff Brock Investment Advisors. Based in Indianapolis, the firms manage about $1.4 billion.