Despite the market’s great performance over the first quarter of the year, there are still unloved stocks struggling to keep up. Many universally known stocks can’t keep up with the Dow Jones Industrial Average and S&P 500, despite their strong underlying financial performance. Hidden underneath the headlines are a few stocks that have performed very well in recent years, but have been anchored by stagnating share price. Investors on the lookout for solid value should keep these stocks in mind going forward.
Coach, Inc. (NYSE:COH) is well-known for its namesake handbags, jewelry, footwear, and accessories. The company operates in the luxury apparel industry and has a premier brand. Coach is in a great financial position, with almost no long-term debt.
Cisco Systems, Inc. (NASDAQ:CSCO) is a $111 billion technology giant. Cisco sells switches and other equipment for the telecommunications and information technology industries. As is typical of many technology large-caps, Cisco has a cash-heavy balance sheet. Cisco has more than $46 billion in cash, equivalents, and investments on its books, compared to just $16 billion in long-term debt.
Deep discount retailer Family Dollar Stores, Inc. (NYSE:FDO) operates approximately 7,400 of its dollar stores in 45 states across the country. Like the first two stocks, Family Dollar is well-capitalized, with a manageable long-term debt to equity ratio of 37%.
Strong financial performance, even in a difficult 2012
It goes without saying that investors need to look for companies that increase their revenues and profits. Not only have these stocks done that, but they’ve demonstrated high growth rates that make their low valuations extremely attractive. In what proved to be a difficult year for many companies, as a result of a painfully slow economic recovery both in the United States and abroad, these companies managed to grow sales and profits at high rates.
For the fiscal year ended June 30, 2012, Coach, Inc. (NYSE:COH) reported an increase in net sales of 14.5% versus the prior year. Earnings per diluted share grew from $2.92 in fiscal 2011 to $3.53 in 2012, representing growth of almost 21%.
Cisco Systems, Inc. (NASDAQ:CSCO) has performed admirably to start the year, increasing net sales by 7.4% and 5.2% over the first quarter and first half of the fiscal year, respectively, versus the same periods one year ago. For the fiscal year ended July 28, 2012, the company grew earnings per share by 27%.
Family Dollar Stores, Inc. (NYSE:FDO) recently announced its first quarter results, reporting 12.7% revenue growth year over year. The company has grown its revenue by 7.5% compounded annually since 2008.
Earn rapid rewards
These stocks trade for multiples of earnings that have a lot of room for expansion. Cisco Systems, Inc. (NASDAQ:CSCO) trades for just 12 times its fiscal 2012 earnings per share, meaning investors are offered a tantalizing combination of a 8.3% earnings yield and a 3.2% dividend yield. Coach trades for only 14 times trailing earnings and offers shareholders a solid dividend yield of 2.5% at recent prices.
In 2012 Coach increased its dividend by 33%. Coach has an amazing three-year dividend growth rate of 58% compounded annually. Not to be outdone, Cisco recently announced that it will increase its quarterly dividend by 21% to $0.68 per share annualized. As a result, the stock now yields 3.2%, a compelling dividend yield that far exceeds the approximately 2% yield on the S&P 500 Index. Although Cisco Systems, Inc. (NASDAQ:CSCO) is a relatively new dividend-paying stock, having only recently instituted its dividend program in 2011, the company has almost tripled its shareholder payout since then.
Family Dollar has the longest dividend track record of the three. In January this year, the company increased its dividend by more than 23%. This marked the 37th consecutive annual dividend increase for Family Dollar Stores, Inc. (NYSE:FDO).
Clearly, these companies made returning cash to shareholders a priority over the past few years. It’s certainly an encouraging sign that each company is so intent on rewarding shareholders. Each of these stocks offers investors the tantalizing combination of attractive valuations and hefty dividend yields. New investors have the opportunity to cash in on both sides of the equity investing coin: strong capital gains potential in addition to high dividend returns.
The article These 3 Stocks Are Irrationally Undervalued originally appeared on Fool.com and is written by Robert Ciura.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
