Thanksgiving is a time to loosen your belt.
That’s why, each year around Thanksgiving, I loosen my stock-valuation belt a little in this column, and suggest five stocks that look good to me even though they are a little more expensive than I normally prefer.
These are GARP stocks. The abbreviation stands for growth at a reasonable price. It’s the territory in between value investing (bargain hunting) and growth investing (seeking companies with rapidly rising sales and earnings).
I’m a value guy. I normally look for stocks selling for 15 times per-share earnings or less. My GARP candidates sell for 16 to 20 times earnings.
Applied Materials
AMAT
AMAT
Applied Materials Inc., which hails from Santa Clara, California, is one of the largest makers of semiconductor manufacturing equipment. This is a business prone to booms and busts but the company has posted a profit in 14 of the past 15 years.
I consider a 15% return on stockholders’ equity good, and 20% excellent. Applied Materials has earned 48% on equity in the past four quarters, and over 30% seven years in a row.
Lindsay
Lindsay Corp. (LNN), which hails from Omaha, Nebraska, is the largest U.S. maker of irrigation systems for farms. One popular type is the Zimmatic center pivot system, which waters a circular area. That’s why, when you fly across the agricultural Midwest, you see a lot of circles on the ground.
The company also sells other types of irrigation systems, and does business in approximately 100 countries. It has posted a profit each year for at least 30 years, as far back as my database goes.
Farmers have been in no mood to spend in 2023, so revenue has been down lately. Still, analysts think fiscal 2024 earnings (the fiscal year ends in August) will be a bit above last year’s.
SLB
SLB (symbol also SLB), formerly known as Schlumberger, is the largest oilfield service company in the world. Like most of its industry, it had lean years in 2014-2020. But now it is back up to a 22% return on stockholders’ equity.
That’s the best SLB has done since 2008. My view, disputed by many, is that good times will continue to roll in the oil patch, so I think SLB’s future looks bright. Competitors to SLB have told me that it enjoys a reputation for being able to help companies to explore and drill at the most difficult sites.
The dividend, cut in 2020 and 2021, has been raised a couple of times since then, indicating to me that management thinks things are back on the right track.
Amkor Technology
AMKR
AMKR
Amkor Technology Inc. , based in Tempe, Arizona, provides packaging and test services to the semiconductor industry. With a $6 billion market value, it is only one twentieth the size of Applied Materials.
But its profitability figures are remarkably similar to those of its much bigger competitor – 14 years of black ink out of 15, and a 48% return on equity in the past four quarters (based on preliminary figures).
Amkor has factories in five Asian countries (Japan, China, Malaysia, Taiwan and Vietnam), plus the Philippines and Portugal. It has 31,000 employees. Yet it is covered by very few Wall Street analysts. Analytical neglect enhances opportunity, in my view.
Fox Factory
Fox Factory Holding Corp. (FOXF) makes parts and accessories for motorcycles, off-road vehicles, snowmobiles and trucks. In the past five years it has increased its sales at a 24% clip and earnings at a 29% pace.
The company, based in Duluth, Georgia, has very little debt (16% of stockholders’ equity) and its operating profit margin has been expanding, yet its stock price is close to a three-year low.
One thing I don’t like is that insiders have tended to be sellers, not buyers. But that is true of many companies, since executives are fed with stock options.
The Record
Today’s column is the 23rd I’ve written about GARP stocks, beginning in 1998.
My picks have averaged a one-year return of 10.3%, edging out the S&P 500 Total Return Index at 9.5%.
Fourteen of my 22 GARP lists have shown a profit. Twelve have beaten the S&P 500.
Bear in mind that my column results are hypothetical and shouldn’t be confused with results I obtain for clients. Also, past performance doesn’t predict the future.
Last year’s list gained a mere 4.7% while the index returned 15.8%. A big loss in Darling Ingredients Inc. was the chief culprit.
Disclosure: I own Amkor Technology personally and in a hedge fund I run. Several of my clients own Applied Materials.
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