The only thing better than oversold stocks are oversold dividend stocks. The dividend, even if it’s a small one, acts as a hedge if you decide to purchase the stock and the trade moves against you.
I do a screen for oversold dividend stocks from time to time, not only because I’m hunting for value, but because oftentimes some names turn up that I’ve never heard of. There’s nothing I like more than a new stock with either a really boring name or one that piques my interest.
Yes, I’m such a geek that I’d rather spend my time searching for value in a new stock than watching The Walking Dead.
This week’s screen turned up three names I’d never heard of. Each of them operates in a specialized area. Each has a good balance sheet. Each also has interesting growth prospects. And each pays a dividend.
Let’s take a look.
Oversold Dividend Stocks – Tractor Supply Company (TSCO)
Tractor Supply Company (TSCO)? No, it doesn’t make tractors. TSCO has a whopping presence of almost 1,300 retail stores across the continental U.S. and have been around since 1938!
Tractor Supply has grown into a major supplier of livestock and animal products (for feeding and containment), lawn and garden products, clothing for the overall-clad farmer in us all, and all kinds of power tools for agricultural use.
In many ways, it’s kind of the Home Depot (HD) for the rural American. I love it!
I love even more that TSCO stock has added $50 million a year to its bottom line each and every year since 2011, and is on track to do it again this year. Meanwhile, Tractor Supply has $56 million in cash and only $3 million in debt. It’s cash-flow-positive, and keeps raising its dividend.
Analysts peg long-term growth at 16.3% annually. Add in the 1.1% yield, and I’d hope for a price-to-earnings ratio of around 17.5. It’s not quite that — it trades for 19 times next year’s earnings — but it is severely battered at 25% off its all-time highs.
I say if you want a midcap growth stock, choose TSCO stock.
Oversold Dividend Stocks – America First Multifamily Investors, L.P. (ATAX)
Next up is America First Multifamily Investors, L.P. (ATAX), which is a specialized financial services business doing something I’ve never heard of before. ATAX has five different segments, under which they own 42 “mortgage revenue bonds” issued by state and local housing authorities. These bonds permit construction and financing of multifamily residential apartments for low-income folks.
So ATAX owns the underlying debt on 32 buildings comprising over 5,400 rental units in 13 states. The interest paid on that debt is what gets passed on to investors. It is exempt from federal taxes. It is not exposed to mortgage loans themselves. These are bonds issued by the government that they hold.
ATAX stock trades at around $5.50, well off its 52-week highs above $7, and yields 9.1%. But the company went from a loss in 2011 to a $4.4 million profit in 2012 and a $17.7 million profit last year. And America First has earned $9.7 million in the first half of this year.
It’s worth a look.
Oversold Dividend Stocks – Inter Parfums (IPAR)
Finally, I wrote about a flavor and fragrance company a few weeks ago, and have another selection in that area.
Inter Parfums (IPAR) is a fragrance house has a slew of wonderful products from fantastic providers, from Jimmy Choo to Boucheron and Oscar de la Renta. (If you want to learn all about the amazing world of fragrances, check out my documentary on the topic.)
In the meantime, IPAR stock trades at $26.50, after trading for as high as $38.94 within the past year. Still, its Q2 sales delivered a 22% increase from ongoing brands, much of it driven by Europe, where sales increased 31%. Earnings increased 66%.
Inter Parfums management is looking for 95 cents in EPS next year, putting the stock at a forward P/E of about 22. That seems expensive for a stock with a 12% long term growth rate, but hold the phone. IPAR has $275 million in cash and no debt, on 31 million shares outstanding. That means you can back out the $9 per share in cash it has, giving it an effective price of $17.43.
Now we have a much more reasonable valuation. I say buy.
As of this writing, Lawrence Meyers did not hold a position in any of the aforementioned securities. He is president of PDL Broker, Inc., which brokers financing, strategic investments and distressed asset purchases between private equity firms and businesses. He also has written two books and blogs about public policy, journalistic integrity, popular culture, and world affairs. Contact him at [email protected] and follow his tweets at @ichabodscranium.