In the two years following President Donald Trump’s inauguration, stocks in both the aerospace and defense and tech sectors have been the biggest winners.
According to CNBC, the iShares U.S. Aerospace and Defense exchange-traded fund (ITA, Financial) has climbed more than 30% since Jan. 19, 2017, while the S&P 500 tech sector has soared more than 37%. Both have outperformed the S&P 500 Index, which has risen 18% over that period.
As a result, investors may find some value opportunities among companies involved in the aerospace and defense and tech sectors that are trading below Peter Lynch value.
Lynch, a renowned investor, developed this method as a way of simplifying his stock-picking process. With the belief good, stable companies eventually trade at 15 times their annual earnings, he set the standard at a price-earnings ratio of 15. Stocks trading below this level are often good investments since their share prices are likely to appreciate over time, creating value for shareholders. The GuruFocus All-in-One Screener also looked for companies with a business predictability rank of at least one star and a 10-year revenue growth rate of at least 6%.
The screener found companies that met these criteria as of Jan. 21 were Apple Inc. (AAPL, Financial), CACI International Inc. (CACI, Financial), Micron Technology Inc. (MU, Financial), Plexus Corp. (PLXS, Financial) and VirTra Inc. (VTSI, Financial).
Apple
The California-based tech giant has a $741.73 billion market cap; its shares closed at $156.82 on Friday with a price-earnings ratio of 13.20, a price-book ratio of 6.96 and a price-sales ratio of 2.96.
The Peter Lynch chart shows the stock is trading below its fair value, suggesting it is undervalued.
GuruFocus rated Apple’s financial strength 6 out of 10. Although the company has issued $51.5 billion in new long-term debt over the last three years, it is at a manageable level due to sufficient interest coverage. The Altman Z-Score of 3.45 also indicates the company is in good fiscal health.
The company’s profitability and growth scored an 8 out of 10 rating. Despite recording a decline in the operating margin over the last several years, it still outperforms 97% of competitors. Apple is also supported by a moderate Piotroski F-Score of 6, which indicates operations are stable, strong returns, consistent earnings and revenue growth and a business predictability rank of three out of five stars. According to GuruFocus, companies with this rank typically see their stocks gain an average of 8.2% per year.
Of the many gurus invested in Apple, Warren Buffett (Trades, Portfolio) has the largest stake with 5.32% of outstanding shares. Other guru shareholders include Ken Fisher (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Spiros Segalas (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Bill Nygren (Trades, Portfolio), Diamond Hill Capital (Trades, Portfolio), Lou Simpson (Trades, Portfolio), Chase Coleman (Trades, Portfolio) and Coatue Management LLC.
CACI International
The information technology company, which is headquartered in Virginia, has a market cap of $3.85 billion; its shares closed at $154.93 on Friday with a price-earnings ratio of 11.59, a price-book ratio of 1.75 and a price-sales ratio of 0.86.
According to the Peter Lynch chart, the stock is undervalued.
CACI International’s financial strength was rated 6 out of 10 by GuruFocus. In addition to having adequate interest coverage, the Altman Z-Score of 3.35 suggests the company is in good financial standing.
The company’s profitability and growth scored a 7 out of 10 rating, driven by strong margins and returns, a high Piotroski F-Score of 7, which indicates operations are healthy, and good earnings and revenue growth. CACI also has a 2.5-star business predictability rank, which, according to GuruFocus, means it sees its stock gain an average of 7.3% per year.
With 0.72% of outstanding shares, Murray Stahl (Trades, Portfolio) is the company’s largest guru shareholder. Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Barrow, Hanley, Mewhinney & Strauss, Joel Greenblatt (Trades, Portfolio), Grantham, Caxton Associates (Trades, Portfolio) and Ray Dalio (Trades, Portfolio) also have positions in the stock.
Micron Technology
The Boise, Idaho-based manufacturer of semiconductor memory chips has a $40.09 billion market cap; its shares closed at $35.76 on Friday with a price-earnings ratio of 2.95, a price-book ratio of 1.18 and a price-sales ratio of 1.38.
Based on the Peter Lynch chart, the stock appears to be undervalued.
Supported by comfortable interest coverage and a high Altman Z-Score of 5.43, GuruFocus rated Micron’s financial strength 8 out of 10.
The company’s profitability and growth scored a perfect 10, driven by operating margin expansion, a perfect Piotroski F-Score of 9 and strong returns. As a result of consistent earnings and revenue growth, Micron has a 3.5-star business predictability rank. GuruFocus says companies with this rank typically see their stocks gain an average 9.3% per year.
PRIMECAP Management (Trades, Portfolio) is the company’s largest shareholder among the gurus with 5.19% of outstanding shares. Other gurus who hold Micron include David Tepper (Trades, Portfolio), Donald Smith (Trades, Portfolio), Pioneer, Greenblatt, Coatue Management, Grantham, George Soros (Trades, Portfolio), Dalio and Leon Cooperman (Trades, Portfolio).
Plexus
The contract manufacturer, which is based in Neenah, Wisconsin, provides electronic manufacturing services to a diverse number of sectors, including aerospace and defense, communications, industrial and commercial and health care. With a market cap of $1.69 billion, its shares closed at $54.57 on Friday with a price-earnings ratio of 13.61, a price-book ratio of 1.89 and a price-sales ratio of 0.65.
The Peter Lynch chart suggests the stock is undervalued.
Plexus’ financial strength was rated 6 out of 10 by GuruFocus. In addition to having sufficient interest coverage, the Altman Z-Score of 3.95 indicates the company is in good financial standing.
The company’s profitability and growth fared a bit better, scoring a 7 out of 10 rating. While Plexus’ margins and returns underperform industry peers, its earnings and revenue have grown consistently. The company is also strengthened by a moderate Piotroski F-Score of 5 and a three-star business predictability rank, which is on watch since its assets are building at a faster rate than its revenue, indicating it may be becoming less efficient.
With 3.57% of outstanding shares, Barrow, Hanley, Mewhinney & Strauss is the company’s largest guru shareholder. Fisher, Chuck Royce (Trades, Portfolio), Hotchkis & Wiley and Simons’ firm also own the stock.
VirTra
The Tempe, Arizona-based company, which provides judgmental use of force simulators and de-escalation scenario training products for law enforcement and military use, has a $31.89 million market cap; its shares closed at $4.03 on Friday with a price-earnings ratio of 5.68, a price-book ratio of 2.56 and a price-sales ratio of 1.84.
According to the Peter Lynch chart, the stock is undervalued.
GuruFocus rated VirTra’s financial strength 8 out of 10 as a result of adequate interest coverage. In addition, the Altman Z-Score of 5.55 suggests the company is financially stable.
The company’s profitability and growth scored a 9 out of 10 rating, driven by an expanding operating margin and a moderate Piotroski F-Score of 6. VirTra is also supported by a one-star business predictability rank, which is on watch as a result of a slowdown in revenue per share growth over the last 12 months. According to GuruFocus, companies with this rank typically see their stocks gain an average of 1.1% per year.
Simons’ firm is the company’s only guru shareholder, holding 0.27% of its outstanding shares.
Additional opportunities
Other stocks that met the requirements of the screener as of Jan. 21 included Skyworks Solutions Inc. (SWKS, Financial), Immersion Corp. (IMMR, Financial), Applied Materials Inc. (AMAT, Financial), Lam Research Corp. (LRCX, Financial) and Arrow Electronics Inc. (ARW, Financial).
Disclosure: No positions.
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