Taking stock of firms exhibiting value, momentum

JUST because a stock is cheap doesn’t mean it can’t get cheaper. That’s why some investors prefer stocks that show both value and momentum.

Twice a year I highlight a few such stocks in this column. Here are a few more. Each of these stocks has beaten the S&P 500 by at least 10 percentage points over the past year, three months and year to date. And each one sells for 15 times earnings or less.

Pultegroup

Pultegroup Inc. (PHM), based in Atlanta, is one of the largest homebuilding companies in the U.S., active in 23 states. The stock is up 27 percent year to date, yet sells for a bargain valuation near five times earnings.

Investors are scared of the homebuilders because a recession is widely predicted for this year. Homebuilding stocks have been murdered in some previous recessions.

That’s the bad news. The good news is that homebuilders can sell homes pretty much as quickly as they can complete them, and that those high home prices are good for homebuilder profits. Pulte scored a 32 percent return on stockholders’ equity last year. I consider anything over 15 percent good.

Group 1

Group 1 Automotive Inc. (GPI) owns 203 car dealerships and 47 collision centers in the U.S. and United Kingdom. The company has posted a profit for 14 years straight. Last year was by far its best.

The stock is up 46 percent in the past year through Feb. 3 yet sells for a very modest five times earnings. Again, I believe that recession fears account for the low multiple.

Eleven Wall Street analysts follow Group 1, but only one of them rates it a “buy.” I wouldn’t go quite so far as Daniel Jones, a market commentator who calls the stock “criminally undervalued.” (Jones also owns the stock.) But I think the analysts are too pessimistic on this one.

Skyworks

Skyworks Solutions Inc. (SWKS), out of Irvine, California, produces semiconductor chips and related products used in wireless transmissions.

Skyworks has a 16-year profit streak going. It has notched a return on equity of 19 percent or more for nine years running. Like most technology stocks, it was whacked for a big loss last year. But so far this year it’s up 24 percent. The stock goes for 14 times earnings.

Amkor

Selling for only nine times earnings is Amkor Technology Inc. (AMKR), which does packaging and testing for semiconductor chips.

In the past ten years, Amkor has increased its profits at better than a 17 percent annual clip. In the past year, profits were up more than 46 percent.

Among the investors who held Amkor shares, as of recent filings, were First Eagle Investment, Chuck Royce and Jeremy Grantham, all market veterans that I respect.

Nucor

I’ll go with Nucor Corp. (NUE) because it has shown a profit in 14 of the past 15 years, and has posted outstanding profits in the past two years. It had a 46 percent return on equity in the past four quarters, triple the level I consider good.

Nucor shares sell for only six times the past four quarters’ earnings. The stock is up 34 percent year to date, as some people are starting to think there won’t be a recession after all.

Past performance

My “Value Plus Momentum” column from a year ago beat the index but didn’t show a profit. My choices were down 1.6 percent while the S&P was down 6.2 percent. Berkshire Hathaway Inc. (BRK), First National Bank of Alaska (FBAK) and Loews Corp. (L) were all down from zero to 3 percent.