As markets rebound from a steep selloff experienced last week due to a retail trading frenzy related to short squeezes in stocks like GameStop Corp. (GME, Financial) and AMC Entertainment Holdings Inc. (AMC, Financial), investors may be interested in finding opportunities among undervalued securities that have predictable performances.
GuruFocus' Undervalued Predictable Screener, a Premium feature, determines whether a stock is undervalued or overvalued based on two methods: discounted cash flow and discounted earnings.
According to both methods, companies with a discount higher than zero are consider undervalued, while discounts below zero are considered overvalued. The companies' predictability rates are then determined based on historical performance over the past decade.
Based on these criteria, two new stocks recently qualified for the screener as of Feb. 1, which were Cintas Corp. (CTAS, Financial) and VMware Inc. (VMW, Financial).
Cintas
Shares of Cintas (CTAS, Financial) are currently trading 36% above its DCF valued of $237 and 30% above its discounted earnings value of $249.
The Cincinnati-based business services company has a $34.13 billion market cap, its shares were trading around $324.81 on Monday with a price-earnings ratio of 36.47, a price-book ratio of 9.76 and a price-sales ratio of 5.03.
The GF Value line also indicates the stock is significantly overvalued currently, an assessment which the GuruFocus valuation rank of 1 out of 10 aligns with.
GuruFocus rated Cintas' financial strength 6 out of 10 on the back of adequate interest coverage and a robust Altman Z-Score of 6.9. Assets are building up at a faster rate than revenue is growing, however, indicating it may be becoming less efficient. The return on invested capital also surpasses the weighted average cost of capital, which implies good value creation.
Driven by an expanding operating margin, the company's profitability scored a 9 out of 10 rating. Cintas is also supported by strong margins that outperform a majority of competitors and a moderate Piotroski F-Score of 5, which indicates business conditions are stable. Despite recording a decline in revenue per share over the past 12 months, it has a predictability rank of five out of five stars. According to GuruFocus, companies with this rank return an average of 12.1% annually over a 10-year period.
Of the gurus invested in Cintas, Pioneer Investments (Trades, Portfolio) has the largest position with 0.09% of outstanding shares. Joel Greenblatt (Trades, Portfolio), Steven Cohen (Trades, Portfolio), Lee Ainslie (Trades, Portfolio) and Mairs and Power (Trades, Portfolio) also own the stock.
VMware
Shares of VMware (VMW, Financial) are trading 26% below its DCF value of $184, but 28% above its discounted earnings value of $107.
The cloud computing software company, which is headquartered in Palo Alto, California, has a market cap of $57.85 billion; its shares were trading around $138.23 on Monday with a price-earnings ratio of 36.65, a price-book ratio of 6.89 and a price-sales ratio of 5.05.
The GF Value line shows the stock is modestly undervalued currently, an assessment which the GuruFocus valuation rank of 9 out of 10 aligns with.
VMware's financial strength was rated 5 out of 10 by GuruFocus. Despite having sufficient interest coverage, the Altman Z-Score of 2.78 indicates the company is under some financial pressure since its assets are building up at a faster rate than revenue is growing.
The company's profitability fared much better, scoring a 9 out of 10 rating even though its operating margin is in decline. VMware is supported by returns that outperform a majority of industry peers, a moderate Piotroski F-Score of 6 and consistent earnings and revenue growth. It also has a four-star predictability rank. GuruFocus says companies with this rank return an average of 9.8% annually.
With a 1.48% stake, Dodge & Cox is VMware's largest guru shareholder. Other top guru investors include PRIMECAP Management (Trades, Portfolio), Jim Simons (Trades, Portfolio)' Renaissance Technologies, Pioneer, Paul Tudor Jones (Trades, Portfolio), Ray Dalio (Trades, Portfolio)'s Bridgewater Associates, Chris Davis (Trades, Portfolio), Ken Fisher (Trades, Portfolio), John Hussman (Trades, Portfolio), Greenblatt and Caxton Associates (Trades, Portfolio).
Disclosure: No positions.
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