3 Stocks trading below a P/CF of 10
Price to Cash Flow, sometimes written as P/CF, is one of my favorite metrics for weeding through stocks. Price to Cash Flow is basically the price divided by the operating cash flow.
Another screen I often do is Return on Equity because it helps measure how efficient management is. All of these stocks had a Return on Equity greater than 20%.
As always, these are simply ideas; please do your own research. This is not an in depth guide into each company’s competitors and balance sheets. I do own two out of three of these stocks; Labcorp is the one I don’t own, but I am considering it at the right price.
3 stocks with a P/CF under 10
- Universal Forest Products UFPI
- Alison Transmission ALSN
- Labcorp Holdings LH
1)Universal Forest Products
I must preface by stating, I have owned Universal Forest Products for two years and it’s been one of my better performing stocks. Why do I continue to like the stock? The management at UFPI is doing an absolutely incredible job, as you’re about to see. They seriously care about their shareholders and, fundamentally, it’s one of the strongest stocks I’ve seen.
A bit about the company-UFPI provides large amounts of lumber to the house manufacturing sector. They do pressure-treated decking and light interior accents. In addition, they offer packaging solutions like crates and steel based solutions. The company has traded on the Nasdaq since 1993.
Price to Cash Flow
The price to cash flow is 5.75. This is the lowest P/CF of the group.
Return on Equity
Return on Equity is 32% for UFPI.
Revenue and Earnings Growth
The EPS TTM was 97.61% this last quarter and the five-year EPS growth is 39%. revenue growth quarter over quarter is 36.40%. Remember, this a stock trading at a P/E of 6.87.
Dividends:
The dividend yield is only 1.47%; however, look at these impressive dividend growth numbers: 1 year dividend growth is 67%, 5 year dividend growth is 27%. UFPI only has a payout ratio of 10%, so this company has PLENTY of room to grow their dividend.
Debt levels
Debt levels are seriously manageable. They have a Debt/Equity of 21%
Margins
Margins have increased at a record pace. Take a look at THIS! Margins have trended up since 2012. Find another company whose margin charts look like that!
2)Allison Transmission
A bit about the company-Allison transmission is the leading manufacturer of propulsion systems for commercial and defense vehicles. Most people are familiar with them as transmission makers. Think buses, heavy duty construction equipment-they probably have an Allison transmission. Allison in recent years has made great strides towards offerings for electric vehicles.
Price to Cash Flow
Price to Cash Flow is 6.53. This number is well below our 10 cut-off.
Return on Equity
Return on equity is a whopping 65.55%. That is the highest ROE of the group. Yet, numbers can be deceiving at first glance. Since equity is assets minus debt, we are about to find out that DEBT is the main reason for this high ROE number. Remember, the equation for ROE is Net Income/ Assets-Debt….The larger the debt number, the smaller the bottom half of the calculation; thereby, driving up the ROE number.
Revenue and Earnings growth rate
EPS was a HUGE 75% TTM to TTM this past earnings report. 5 year EPS was 27%. Revenues were up 15% quarter over quarter. So, Alison is putting out some great double digit growth numbers. If they keep up such great numbers, remember you are paying under a 10 multiple for this stock.
Dividends
1 year dividend growth of 10.53%; 5 year dividend growth of 7%. The Dividend growth of Alison Transmission is much less impressive than that of UFPI. However, it has a super low payout ratio of only 19.3%. The current dividend yield is 2.18%. This is a stock where I get the dividends and reinvest more each quarter.
Debt Level
Debt Levels for ALSN are quite high at 370% Debt to Equity. This is my only concern about this company; however, they HAVE been consistently paying down the debt. Also keep in mind, a company as industrial based as ALSN is going to have higher debt levels than a lot of companies in other sectors.
Margins
Margins aren’t as good with ALSN. They climbed into 2019 and then fell into March of 2020. They are steadily on the uptrend again.
Concerns-The main concern with ALSN is that electric vehicles are on the way in and this somehow means less sales for ALSN. I think we are many years away from that. Besides ALSN has leveraged its business into electric vehicles as well. I just think this concerned is over played. For me, the debts and margins are something I plan to watch closely. I don’t think this company represents as good of a value as Universal Forest products, but in this macro-environment, I do think it is worth consideration.
3)Labcorp Holdings
A bit about the company: Lapcorp Holdings is one of the largest medical test companies. Between it and Quest Diagnostics, they do most of the routine blood work doctors order these days. Their business, of course, grew during the pandemic. Labcorp has recently expanded to Walgreens locations in 34 states.
Price to Cash Flow
P/CF of 8.05; the highest of the group.
Revenue and EPS growth rates
Unfortunately, LH saw a decline in earnings of -19% TTM to TTM. On the other hand, EPS growth is up 28% over the last five years. They had some issues during the pandemic and hopefully they can get things back on track. Revenue growth was also down (-6.3%).
Return on Equity
Return on Equity is 20%.
Dividends
Payout Ratio is 13.8%. This company has no growth on the year and a -18% growth over the last five years. They just haven’t been paying a dividend long enough.
Debt Level
Debt to Equity levels are 57%, so not concerning at all. Not as great as UFPI, but not bad at all.
Margins
Their profit margins were 13% this past quarter. Gross margins are 36%.
Closing Thoughts
I can’t lie, Universal Forest Products is my favorite of the group. Look at the numbers on this beauty. It looks almost perfect. Low debt, great dividend growth, and a good valuation. What isn’t to like? I think ALSN is a good stock too; it’s simply one you’ll need to keep a closer eye on.
