Following its acquisition of StarBev in 2012, Molson Coors Brewing Company (NYSE:TAP) has become the proud owner of the #1 selling brand of beer in Montenegro, Croatia, Hungary, Serbia, and Bulgaria, putting itself in a dominant position in the Central European market. With beer volume and beer consumption per capita expected to grow at a 3% rate in Central Europe for the next three years, Molson is in the driver’s seat for future growth in the area. Furthermore, with a joint venture set up in India, and a 20% jump in its 2012 international sales, including Latin America, China, and Russia, the company has many international growth options yet to be fully expanded upon.
With the previously mentioned acquisition and a few smaller acquisitions being made as well, I am more than happy to buy Molson Coors at book value. With a dividend around 3% and a decline in the number of shares outstanding since 2010, I have good incentive to hold for the long-term as well.
GrafTech International Ltd (NYSE:GTI)
Why it’s cheap: switching gears from the consumer market to industrials, we will take a look at one of my personal favorites, courtesy of the Motley Fool Money podcast. Holding a P/B of only 0.9, GrafTech International Ltd (NYSE:GTI) has plenty of room to appreciate, as it has fallen from its recent historical mark of around two. Throw in a forward P/E of 7.5 and a five-year PEG of 0.8 and the company appears downright cheap.
Why it’s undervalued: well, simply because of its huge moat. In as simple of terms possible, they make graphite electrodes for Electirc Arc Furnaces (EAF’s), and as of right now there are no known alternatives. Pair that up with high barriers to entry and this is a great niche with a wide moat for GrafTech International Ltd (NYSE:GTI) to be in. Operating six plants in four different continents, the company’s two biggest competitors, SGL Carbon AG and Showa Denko , only have plants on two continents. Furthermore, fighting various Chinese companies that together produce over 65% of the world’s graphite electrodes, GrafTech International Ltd (NYSE:GTI) manufactures 15% of the world’s supply by itself, making it the largest single producer in “the growth sector of steel.”
Adding to the excitement, the company’s second largest business operation, the production of needle coke, helps align the company’s vertical integration, allowing it to bring home a profit margin of 12%. As the key raw material in manufacturing graphite electrodes, GrafTech’s needle coke production allows the company to manage 45% of its overall graphite electrode costs.
Despite holding over $600 million in long-term debt, the company’s debt/EBITDA is only 2.5x and it is in solid financial position overall. With a minisule P/B of 0.9, despite its profitability over the last six years, I am comfortable holding this steadily growing electrode manufacturer for the long term.
Foolish final thoughts
While all of these companies are cheap, they are, more importantly, undervalued by the market. With Skullcandy’s growth and strong brand, Molson Coors’ expansion into Central Europe and their 3% dividend, and GrafTech’s wide moat in a growing niche, I am confident that these cheap stocks are currently undervalued.
The article Don’t Overthink It: 3 Undervalued Turnaround Stocks originally appeared on Fool.com.
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