In the spirit of Peter Lynch-style stock picking, here are three companies with boring names and boring jobs. There’s nothing exciting about the “About Us” page – not unless you’re a fan of tow trucks – but a look at the recent third-quarter financials reveals that these businesses are great investments.
Alliance Data Systems
Alliance Data Systems Corp. (ADS, Financial) makes data actionable. That means collecting and analyzing the data that companies need in order to build lead-based marketing strategies, customer loyalty programs and all the other things retailers want your email address and phone number for. It’s not just boring; many consumers consider it about as tasteful a job as trash collection or sewage tank cleaning. The company has grown to a market cap of $6.33 billion and an enterprise value of $15.18 billion. Its revenue and net income have been steadily growing since the company’s founding.
From an investing standpoint, this company may provide a hard-to-find opportunity. Although Alliance’s revenue and income are good, its stock price has sharply declined since 2016. According to the Peter Lynch chart below, the stock is currently undervalued to a rarely seen degree.
Alliance has a price-earnings ratio of 7.79, a price-sales ratio of 1.02 and an operating margin of 26.78%. It has a GuruFocus financial strength score of 4 out of 10 and a profitability score of 9 out of 10. Its financial difficulties mainly come from its debt; the company has a cash-to-debt ratio of 0.31, an interest coverage ratio of 2.82 and an Altman Z-Score of 1.76.
However, this alone is unlikely to account for the company’s undervaluation. Low institutional ownership may be another reason for this. Currently, only 17.4% of Alliance’s shares are held by institutions, which sways the stock price in favor of individual sentiment. Individuals are not particularly attracted to data mining and marketing.
Miller Industries
If you’ve ever had the unpleasant experience of having your vehicle towed, there’s a chance it was towed by equipment made by Miller Industries Inc. (MLR, Financial), which has a market cap of $364.82 million and an enterprise value of $359.75 million. Towing is something most people try not to think about, and when it happens, we often don’t see the process ourselves. Whether your car gets towed due to a wreck, accidentally parking in a no-parking zone, some unknown damage or just because it won’t start one morning, the towing equipment business is one that people tend to repress their memories of.
Miller Industries has been growing its revenue and net income every year since 2012. The Peter Lynch chart below shows that this company is currently undervalued.
The company has a price-earnings ratio of 9.6, a price-sales ratio of 0.47 and an operating margin of 6.29%. GuruFocus has assigned it a financial strength score of 8 out of 10 and a profitability score of 9 out of 10. With an interest coverage ratio of 21.15 and an Altman Z-Score of 4.27, Miller is in a good position to manage its debt while its stock price increases to its intrinsic value.
This stock’s ownership is 99.54% institutional, with 11.05% of outstanding shares being held by Chuck Royce (Trades, Portfolio) and 8.87% being held by BlackRock Inc.
Snap-On
Snap-On Inc. (SNI, Financial) is a company that designs and manufactures high-end tools for professional industries, including the automotive, aviation, aerospace, construction, agriculture and collision industries. It has a market cap of $8.7 billion and an enterprise value of $9.71 billion. Tools are already the unsung heroes of every company that manufactures products, and Snap-On’s highly specialized tools are even more under the radar. It doesn’t help that the company has a name that sounds like it belongs in an infomercial for kids’ toys or baby clothes.
In addition to consistently growing its revenue and net income since 2010, Snap-On has paid quarterly cash dividends since 1939 without reduction or interruption. Below is a chart of the company’s recorded history of dividends per share.
The Peter Lynch chart below also shows the stock as being undervalued in terms of its earnings.
The company has a price-earnings ratio of 12.93, a price-sales ratio of 2.23 and an operating margin of 23.79%. It has a GuruFocus financial strength score of 6 out of 10 and a profitability score of 9 out of 10. Its dividend yield is 2.36%, with a three-year dividend growth rate of 15.7%.
Snap-On has strong institutional ownership, with 99.57% of shares being owned by institutions. The biggest guru stockholders for this company are Vanguard Group Inc. with 10.98% of outstanding shares and BlackRock with 9.85% of outstanding shares.
Disclosure: Author owns no shares in any of the stocks mentioned.
Read more here:
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