‘Tis the season for some expensive tastes in stocks

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

Applied Materials Inc. (AMAT), 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 percent return on stockholders’ equity good, and 20 percent excellent. Applied Materials has earned 48 percent on equity in the past four quarters, and over 30 percent 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 percent 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.

Amkor Technology

Amkor Technology Inc. (AMKR), 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 percent return on equity in the past four quarters (based on preliminary figures).

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 percent clip and earnings at a 29 percent pace.

The company, based in Duluth, Georgia, has very little debt (16 percent of stockholders’ equity) and its operating profit margin has been expanding, yet its stock price is close to a three-year low.

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 percent, edging out the S&P 500 Total Return Index at 9.5 percent.

Fourteen of my 22 GARP lists have shown a profit. Twelve have beaten the S&P 500.