Have you ever been dumpster diving? I have–it is a great past time. One thing I’ve learned is that you never know what some people will throw away. Sometimes there is a reason it is being thrown out, while other times you find something that proves the old adage: one man’s trash is another man’s treasure.
This applies to the stock market as well. Many an investor has found a treasure in an investment that other investors were throwing out. So, let’s look for some of these treasures in this article. But first, we’ll need to take a trip to the dump.
The Dump
These stocks have been thrown out by investors judging by their 52-week price change.
Herbalife Ltd. (NYSE:HLF) -50%
Gold Fields Limited (ADR) (NYSE:GFI) -41%
Hmmm, what do we got here?
| Company | Market Cap | *EPS Growth | P/E Ratio | Forward P/E | PEG |
| Herbalife | $3.59 Billion | 37% | 8.6 | 6.47 | 0.53 |
| Gold Fields Ltd | $4.68 Billion | 70% | 7.3 | 5.73 | n/a |
| Questcor Pharmaceuticals | $1.6 Billion | 101% | 8.84 | 5.38 | 0.24 |
| Caterpillar | $52.94 Billion | 81% | 9.53 | 8.74 | 0.78 |
| Jabil Circuit | $3.45 Billion | 73% | 9.42 | 6.45 | 0.66 |
*Last three years
As you can see, these stocks have had double digit growth, have P/E ratios under 10, and price to earnings growth ratios under 1. To add even more perspective to this, how do the numbers stack up against their respective industries?
| Company | P/E Ratio | Industry Average |
| Herbalife | 8.6 | 17.4 |
| Gold Fields Ltd | 7.3 | 35.3 |
| Questcor Pharmaceuticals | 8.84 | 86.3 |
| Caterpillar | 9.53 | 10.8 |
| Jabil Circuit | 9.42 | 16.7 |
All five of these companies beat the industry averages as far as the price to earnings ratio is concerned. Considering these metrics, all five of these companies look cheap. But are they truly treasures?
Which Are Truly Dumpster Treasures?
Herbalife
Herbalife Ltd. (NYSE:HLF) has had a very rough year, as its down 50%. If you think it is due to their many competitors, think again. Herbalife Ltd. (NYSE:HLF) has done just fine in staying competitive. What happened was David Einhorn asked 3 questions. People thought that this was Einhorn’s short flavor of the month, and quickly sold. This led to the first big drop. Since then downgrades, accusations of being a pyramid scheme, and issues with their auditors have all played a role in hammering the stock down.
In the end Einhorn did short Herbalife, but that is now behind us. Now that Einhorn is done, Carl Icahn is in. Looking ahead to the next quarter, the company is expecting growth between 12%-14%. It offers a dividend of 3.5%. Given the continued growth, and the current low valuations, there seems to be little room left to fall from here.
Gold Field
When it comes to Gold Fields Limited (ADR) (NYSE:GFI), you are probably worried about the recent gold sell-off. There are some concerns when you look at this company. Revenue for was up for 2012, but higher operating costs, and a costly strike at one of their mines, ate into profits. It wasn’t the best of years for the company, and with the shaky gold market it’s not a sure winner.
As we look towards the future there are a couple things I like about the direction of the company. One: they are going to start focusing on cash returns instead of ounces mined. Now, it may seem like these go hand in hand, but it’s a subtle shift that I like. Rather than mine an ounce of gold at any cost, they are going to focus on the most profitable ventures only. Two: they are staying committed to their dividend first policy. While some miners spend all their money on acquisitions and new mines, Gold Fields Limited (ADR) (NYSE:GFI) is choosing to reward shareholders through dividends first. Currently the dividend is sitting at 4.3%, and has been paid out bi-annually every year since 2001.
Questcor Pharmaceuticals
Ok, we looked at the numbers for Questcor Pharmaceuticals Inc (NASDAQ:QCOR) above, and it honestly seems hard to believe that a company can experience the growth that they are experiencing, and be at the low valuation that they are. There are two main issues plaguing the company right now.
Limited reimbursement from insurance in regards to Questcor’s #1 product.
There is a government investigation into their marketing practices.
These two things have caused some to downgrade the stock.
Yes there’s an investigation, but Questcor’s Acthar is a drug for treating MS that outperforms competitors. This competitive advantage should lead to continued demand. Questcor Pharmaceuticals Inc (NASDAQ:QCOR) has also acquired a company called BioVectra to increase operations for Acthar. Not to mention this company is also buying back shares like crazy, and is currently sitting on a 3.5% dividend. It seems like speculation has spooked investors more than the actual situation of the company. It’s good to assess risk, but the opportunities seem to outweigh the worries on this one.
Caterpillar
I was honestly not expecting to find Caterpillar Inc. (NYSE:CAT) in this list. It seems that the fear of economic slowdown, especially that of the Chinese flavor, has sent investors running. Analysts have downgraded the stock to neutral. Sales growth slipped last year, and the guidance offered by the company expects the growth to slip again.
But Caterpillar Inc. (NYSE:CAT) is still the number one company in its industry. And as Fool writer Dan Carroll points out, it is the 3rd cheapest company on the Dow (by forward P/E).
There might be one other thing to consider.
CAT Dividend data by YCharts
Caterpillar offers an ever-increasing dividend. It’s a small yield, at 2.5%, but it is something, and there is a long history of increases.
Jabil Circuit
Jabil Circuit, Inc. (NYSE:JBL) is a leader in electronic manufacturing services. But the company’s main area of growth has been diversified manufacturing services. Growth for this segment of the business slowed to “just” 11% growth in the most recent quarter. Throw in an earnings miss and guidance below analyst’s estimates, and you see why this stock is down over 20%.
But what’s around the corner? Jabil Circuit, Inc. (NYSE:JBL) just acquired Nypro Inc., which already has $1 billion in annual revenue. This deal opens up new markets in manufacturing for Jabil. But when it comes to their current market, they are also decently diversified by having both Apple Inc. (NASDAQ:AAPL) and RES.IN MOT.DBA BLACKBERRY (FRA:RI1) as customers. To top it off, this stock offers a dividend. There are some risks for Jabil, but there are also a lot of opportunities.
What Dumpster Treasures Did We Find Today?
I personally think that all five of these stocks have dropped far enough. However, when it comes to Gold Fields, I just didn’t see enough to be really sure about growth 3-5 years down the road. As for Caterpillar, I think that they’ll be able to maintain just fine, though when it comes to beating the market I’m less sure. Both seem to be a good value, just not quite the treasure quality I’m looking for.
But after looking at Herbalife Ltd. (NYSE:HLF), Questcor Pharmaceuticals, and Jabil Circuit, I think these are some serious steals. Huge growth projections. Stupid low valuations. Competitive advantages. These are the kind of stocks that value investors hope for.
The article One Investor’s Trash is Another Investor’s Treasure originally appeared on Fool.com is written by Jon Quast.
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