Supervalu (SVU) currently trades near its 52-week low of $6.26. It distributes an annual dividend of $0.35 and has a yield of 5%. During the last five years the stock has been on a bearish trend, decreasing from $49 per share to its current price of $6.92. The depreciation in stock price is primarily due to lower revenue and decreasing cash flows over the years. For example, revenue over the last four years has been decreasing at a compound annual growth rate (CAGR) of 3.92% while income has been highly volatile, fluctuating from net losses to profitability. In addition, cash flow has been on a downtrend, decreasing at a CAGR of 26.48% over the last five years. Earnings per share (TTM) were last reported at a loss of $2.47, compared to $1.94 and $1.48 for competitors Kroger (KR) and Safeway (SWY), respectively.
The reason I believe this stock can appreciate to $15 is because it has been severely battered over the last five years, thus I think it's very cheap to buy right now. From a technical perspective, I would claim the stock looks "exhausted" as it has been trading sideways for the last five months; therefore it may now be ready to make a comeback and start trading higher.
Pulte Group (PHM): Pulte Group has a market cap of $3.29 billion. Over the last 12 months, sales decreased 9.50% while income increased 80.80%. Over the last four years, revenue has been decreasing at a CAGR 9.85%, making the company unprofitable. In addition, cash flow has decreased substantially during the last two years, going from $1.86 billion to $1.08 billion. However, the stock has appreciated over 140% during the last four months.
Earnings per share were last reported at a loss of $0.55 while competitors DR Horton Inc. (DHI) and KB Home (KBH) reported earnings of $0.38 and -$2.32, respectively. The high price-to-earnings-to growth (PEG) ratio of 8.45 implies the market is expecting a high growth rate for Pulte Group.
I believe this stock has already started trading higher as the outlook for the residential construction sector and the real estate markets improve. It may take some time, but the stock can trade back in the levels it traded during 2007 and 2008. In my opinion, this may be a good stock to buy and hold until it reaches $15 or higher.
LSI (LSI): LSI Corporation has a market cap of $4.63 billion and is currently trading just below its 52-week high of $8.52. During the last 12 months, sales and income increased 9.30% and 161.60%, respectively. Revenue over the last four years has decreased at a CAGR of 6.52% while the company became profitable in 2010 after years of reporting net losses. Nonetheless, the stock has appreciated 69.28% during the last four months. Cash flow for fiscal year 2011 increased 49.45%.
Earnings per share came in at $0.55 while its competitors, NXP Semiconductors NV (NXPI) and Texas Instruments Inc. (TXN), reported earnings of $1.57 and $1.88, respectively. The industry average is $0.55.
The stock has slowly been reaching new highs since 2009, and I believe this slow bullish trend will continue as long as revenue increases, cash flow strengthens and earnings per share increase as the semiconductor sector improves with higher demand from a healthier economy. The stock carries no long-term debt.
Tenet Healthcare (THC): Tenet Healthcare has a market cap of $2.43 billion and is currently trading around $5.60. Over the last 12 months sales and income increased 2.10% and 419.80%, respectively. Revenue during the last four years has been increasing at a CAGR of 3.30% while income has been increasing at a CAGR of over 480% during the same period.
Earnings per share came in at $0.42 while its competitors HCA Holdings Inc. (HCA) and Universal Health Services Inc. (UHS) reported earnings of $4.97 and $3.44, respectively. Price to earnings ratio for Tenet Healthcare is 13.49, compared to HCA Holdings (5.06) and Universal Health Services (11.97).
Management is doing a good job decreasing debt while assets remain stable. Finally, I expect revenue to continue growing steadily and earnings per share to increase slightly, thus I believe the stock will appreciate in value and trade in the levels in traded in the early 2000's. The stock has appreciated 66% during the last four months.
Micron Technology Inc (MU): Micron Technology Inc has a market cap of $8.11 billion and is currently trading around $8.21. Revenue over the last four years has been increasing at a CAGR of 10.75% while the stock became profitable in 2010 after years of reporting net losses. Earnings per share came in at a loss of $0.17.
Debt to equity ratio stands at 0.26. In fact, total debt has been decreasing at a CAGR of 7.44% while assets have been increasing at a CAGR of 2.37% during the last four years. A good indication management can use the additional cash not paid in interest to expand, increase advertising or reinvest it in other projects to continue increasing revenue, providing a better return to shareholders.
I believe management will continue improving the financial strength of the company to drive the stock price higher with higher revenue, less debt and better earnings per share. In my opinion, the stock has the potential to trade higher as the semiconductor sector improves with higher demand from businesses as the economic outlook becomes brighter. The stock has appreciated 89.61% during the last four months.
About the author:
I fundamentally analyze every business from the top down.
In my personal life, I have a strong Jewish faith and enjoy playing Scrabble and entrepreneurship.