Buying good companies at their historical low price/sales ratio is a strategy used by Arnold van den Berg, the founder of Austin- based firm Century Management. Arnold van den Berg’s latest purchase of Cisco (CSCO) is an example of his investing in good companies that are in historical low price/sales ratios.
Looking through our list of the stocks that are traded at historical low price/sales ratios, many of the companies are blue chip companies that our Gurus think are undervalued. Here we just highlight some of the stocks.
Corinthian Colleges Inc. (COCO)
Corinthian Colleges Inc. (COCO) is traded at 10-year low P/S ratio of 0.2. Owned by five Gurus. Four bought in the latest reports, including Joel Greenblatt and Donald Smith, who likes to buy stocks that are traded at historical low price/book ratios.
Corinthian Colleges Inc. is one of the largest post-secondary education companies in North America, operating colleges in states in the United States. Corinthian Colleges Inc. has a market cap of $378 million; its shares were traded at around $4.47 with a P/E ratio of 3 and P/S ratio of 0.2. Corinthian Colleges Inc. had an annual average earnings growth of 7.3% over the past 10 years. GuruFocus rated Corinthian Colleges Inc. the business predictability rank of 2.5-star.
Shares of for-profit education companies have been battered recently by regulatory overviews and congressional hearings. However, the worst appears to be behind the industry. Significant growth may not be likely but the industry's slide may have come to an end, according to a recent press release. The primary problem for-profit educators were having a high rate of student withdrawal. Critics of the industry claimed that schools were saddling too many students with debt, and not enough with diplomas and work opportunities.
Even with all the problems, the stock looked significantly undervalued, according to a very conservative estimate with GuruFocus DCF calculator.
Teva Pharmaceutical Industries Ltd. (TEVA)
Teva Pharmaceutical Industries Ltd. (TEVA) is traded at P/S ratio of 2.9, close to 10-year low of 2.91. Teva was the only non-financial stock that Bruce Berkowitz bought. It is also owned by hedge fund giants John Paulson and James Barrow. The stock price is at about what these great investors have paid.
TEVA Pharmaceuticals USA, the business is to develop, manufacture and market generic pharmaceuticals. Teva Pharmaceutical Industries Ltd. has a market cap of $46.91 billion; its shares were traded at around $50.04 with a P/E ratio of 11 and P/S ratio of 2.9. The dividend yield of Teva Pharmaceutical Industries Ltd. stocks is 1.7%. Teva Pharmaceutical Industries Ltd. had an annual average earnings growth of 37.1% over the past 10 years. GuruFocus rated Teva Pharmaceutical Industries Ltd. the business predictability rank of 2.5-star
As written by Steven Kiel, “Teva finished 2010 with about $1.25 billion in cash and has the option of buying back shares. They also have plans to pursue additional acquisitions. I find it difficult to value pharmaceuticals because of the unpredictability of their coming drugs. I like that Teva has a strong pipeline, but I don’t know how you estimate revenue three to five years out when these drugs aren’t even for sale yet. That being said, you can combine predictions on their current drugs coupled with some faith in their management. As I mentioned above, I think the rosiest value is about $100. That’s if all goes according to management’s plan, which surely doesn’t take into account the revenue loss risks from Copaxone. On the other hand, even if you assumed Copaxone’s market share and revenue is cut in half, which I think is the other extreme, shares should still be north of $65. If shares are currently below $48 and the worst case scenario is a stock price of $65, you have a very comfortable margin of safety.”
Comcast Corp. (CMCSA)
Comcast Corp. (CMCSA) is traded at P/S ratio of 1.9, close to 10-year low of 1.95. Comcast is in the portfolio of Mario Gabelli and George Soros. Warren Buffett sold out his positions. Daniel Loeb bought 1,150,000 shares in the quarter that ended on 12/31/2010, which is 1.34% of the $1.88 billion portfolio of Third Point, LLC.
Comcast Corp., among the world's largest communication companies, provides basic cable, digital cable and high speed internet services that connect people to what's important in their lives. Comcast Corp. has a market cap of $70.13 billion; its shares were traded at around $25.26 with a P/E ratio of 19.4 and P/S ratio of 1.9. The dividend yield of Comcast Corp. stocks is 1.5%. Comcast Corp. had an annual average earnings growth of 21.4% over the past 10 years. GuruFocus rated Comcast Corp. the business predictability rank of 2-star
Hedge fund manager Glen Greenberg used to have Comcast as his largest portfolio for many years. He has since reduced his position. But still, Comcast is his second largest position.
Hudson City Bancorp Inc. (HCBK) is
Hudson City Bancorp Inc. (HCBK) is traded at P/S ratio of 1.7, close to 10-year low of 1.65.
Hudson City Bancorp Inc.is a bank holding company. Through its subsidiary, Hudson City Savings, they are a community and customer-oriented savings bank that provides financial services primarily to individuals and families. Hudson City Bancorp Inc. has a market cap of $5.06 billion; its shares were traded at around $9.61 with a P/E ratio of 8.8 and P/S ratio of 1.7. The dividend yield of Hudson City Bancorp Inc. stocks is 6.3%. Hudson City Bancorp Inc. had an annual average earnings growth of 28.7% over the past 10 years. GuruFocus rated Hudson City Bancorp Inc. the business predictability rank of 5-star.
Hudson City Bancorp Inc. just went through its balance sheet restructuring. The restructuring condensed higher-cost structured borrowings, which are expected to increase net interest income in the coming quarters as interest expenses goes down.
As a part of restructuring, Hudson City paid off $12.5 billion in structured quarterly putable borrowings. The funds for the payment were arranged through the sale of $8.7 billion of securities and $5.0 billion of new shorter-term fixed maturity borrowings with an average cost of 0.66%.
Hudson City expects the transactions to negatively impact first-quarter 2011 after-tax earnings by roughly $644 million or $1.30 per share. For full-year 2011, the loss from the restructuring will be reduced by four quarters’ earnings, excluding the restructuring charge.
PepsiCo Inc. (PEP)
PepsiCo Inc. (PEP) is traded at P/S ratio of 1.8, close to 10-year low of 1.71. PepsiCo Inc. is in the portfolio of Don Yacktman and Primecap Management.
PepsiCo Inc. consists of: Frito-Lay Company, Pepsi-Cola Company, and Tropicana Products. Pepsico Inc. has a market cap of $104.96 billion; its shares were traded at around $65.58 with a P/E ratio of 15.9 and P/S ratio of 1.8. The dividend yield of Pepsico Inc. stocks is 2.9%. Pepsico Inc. had an annual average earnings growth of 8.5% over the past 10 years. GuruFocus rated Pepsico Inc. the business predictability rank of 4.5-star.
Pepsi is a one of the top predictable companies. The revenue and earnings per share have grown consistently over the past 10 years:
Regarding to their Pepsi holdings, Don Yacktman commented in the interview with GuruFocus readers: “The domestic carbonated soft drink (CSD) business is not an especially important component of the value of PepsiCo. Frito Lay, Quaker Foods, Gatorade, and many other brands are far more important than domestic CSD’s. We would not be excited about the future of either Coca-Cola or PepsiCo if we were only looking at the North American CSD businesses. Both companies have strong global franchises and a wide variety of brands which we expect will provide solid growth over time.”
We don’t know when the prices of these stocks will get where they deserve, but at the current valuation of the broad market, these stocks offers low risks, good dividends, and potentially satisfactory returns. Check out the complete list of the stocks that are traded at historical low price/book ratios. This feature is for premium members only. If you are not a Premium Member, we invite you for a 7-day Free Trial.
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