GuruFocus Premium Membership

Serving Intelligent Investors since 2004. Only 96 cents a day.

Free Trial

Free 7-day Trial
All Articles and Columns »

3 Good Stocks for 2008: AMN Healthcare Services, Korn/Ferry International, and Ingram Micro, Inc.

December 30, 2007 | About:
With tax selling near its end, here are three lesser known names worth considering for 2008. All have solid earnings, decent balance sheets and substantial upside. Each one trades much closer to its low than its high despite excellent fundamentals. None of these have exposure to the housing or credit market turmoil.

AMN Healthcare Services: [NYSE:AHS] Dec. 29, 2007 close: $16.97

52-week range: $16.40 - $29.10

AHS provides temporary and long-term healthcare staffing to hospitals and clinics. They place MD's, nurses, therapists and medical technicians for periods from a few days to two years in duration.

After a period of substantial earnings growth from 2004 - 2006, EPS are likely to be up just slightly in 2007. Because of the slowdown in growth the shares have retreated from February highs of over $29 to today's $16.97.

Is this warranted? EPS are expected to finish at $1.04 for 2007 and consensus estimates for 2008 are for 15.4% growth to $1.20 /share. This makes the P/E just under 14.2X forward earnings versus typical P/E's of over 20X. In fact, these shares had average P/E's of 21.8, 27.9, 22.9 and 21.8 in four of the past five years.

Value Line assumes a 20 multiple for the 3 - 5 year time frame. If AHS hits the expectaions for 2008 then a reasonable target price of 20X $1.20 would be $24 or up 41% from the current level.

Risk appears limited as the 2006 and 2007 lows were $17.30 and $16.40 even during brutal sell-offs in the overall market.

Korn/Ferry International: [NYSE:KFY] Dec. 29, 2007 close: $18.87

52-week range: $15.35 - $27.13

Korn/Ferry provides executive recruitment services globally to many of the world's top companies. They are debt free and had over $245 MM in cash as of July 31, 2007.

Earnings are expected to come in at an all-time record $1.47/share for the FY ending April 20, 2008. The following FY's estimate is now at $1.52 taking into account the possibiliity of a slowing economy.

Thus, KFY's P/E is now a very low [by historical standards] 12.8X current earnings. Value Line feels a 17.5X multiple is justified for the long term for KFY.

At 17.5X the next 12 month's projection KFY shares would reach $26.25 or up 39% from today's level. In a hot market back in 1999 - 2000 these shares peaked out at $36.60 and $44.10 . In June this year they touched $27.10 making the goal price seem very attainable.

Sales, cash flow, earnings and book value are all at record levels now and all estimates look even better going forward.

Risk? The absolute lows for 2006 and 2007 were $17.70 and $16.30 respectively during very bad market conditions.

Ingram Micro, Inc. [NYSE:IM] Dec. 29, 2007 close: $18.36

52-week range: $17.81 - $22.50

Ingram Micro is the world's largest [by revenues] distributor of computer products and services. Estimated sales for 2007 > $34 billion. This is an indirect play on the global growth in computer sales and useage.

Large capital outlays early in 2007 hurt first half earnings but the September quarter showed good growth [$0.39 v. $0.34 year-over-year] and each of the next five quarters is expected to show very positve comparisons.

The 2008 consensus estimate is now $1.96/share up from $1.50 [including one-time items] or $1.74 on a non-GAAP basis for 2007. IM now trades at just 9.4X next year's estimate.

Third Avenue Management [Marty Whitman's shop] owns almost 1.6MM shares of IM.

Ingram's 10-year median P/E has been 19X but Value Line is assuming a more modest 16X multiple for its normalized level. 16 times next year's estimate of $1.96 brings me to a 12- month target price of $31.36 or plus 70% from today's quote.

Risk? IM shares bottomed at $16.50 and $17.81 in 2006 and 2007 so there doesn't appear to be a lot of downside, especially considering the greatly improving earnings picture.


If you're willing to play with small to mid-cap stocks, these three look to offer good risk/reward characteristics and would seem relatively immune to the credit market worries that face many companies.



About the author:

Dr. Paul Price
http://www.RealMoneyPro.com
http://www.TalkMarkets.com
http://www.MutualFunds.com

Visit Dr. Paul Price's Website


Rating: 3.1/5 (12 votes)

Comments

DaveinHackensack
DaveinHackensack - 6 years ago
StockDocx,

I looked at KFY for my Magic Formula portfolio and bought higher-end competitor HSII instead after KFY's run-up. Current valuation ratios and balance sheet strength are similar for both stocks. HSII generates about 45% of its revenues overseas; I went to check KFY's website to see what percentage of revenues they generate overseas but their website was down for maintenance.

FYI, this blogger, who is short both stocks, offers his bearish position here: "Korn Ferry, Monster, Heidrick & Struggles: Recession Risk Not Priced In". I responded at that site, and he responded to my response.
Dr. Paul Price
Dr. Paul Price premium member - 6 years ago
Ingram Micro gets 57% of its revenues from outside North America. 34% from Europe and 23% from the rest of the world ex-NA.
Dr. Paul Price
Dr. Paul Price premium member - 6 years ago
Commentary from ZACK's on IM:

Dated December 13, 2007

Ingram Micro Inc. (NYSE: IM) qualifies for the Low Price profit track as its share price of around $19 meets this screen's parameter of $20 or less. It is also a Zacks #2 Rank company. Late last month, the technology distributor reaffirmed its fourth quarter guidance, stating that sales are expected to hit another record for the quarter and for fiscal 2007. Ingram Micro attributed such records to its success in adjacent markets and geographic expansion. Ingram Micro expects fourth quarter earnings per share between 58 cents and 61 cents with sales between $9.7 billion and $9.95 billion.
DaveinHackensack
DaveinHackensack - 6 years ago
StockDocx,

Did you look at the link I provided to the blogger who is bearish on the recruiting firms? I'm long on one of them too (HSII), but I think it's in our interest to read what the shorts have to say.
Dr. Paul Price
Dr. Paul Price premium member - 6 years ago
I read it. I all comes down to if we have a major recession or worse. If not, these type shares look unusually cheap. Remember the famous line that economists have predicted 10 of the last 4 recessions.

Please leave your comment:


Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK