3 Value Stocks Hiding in an Overpriced Market

I’ve been going nuts trying to find value stocks in this market. One of the problems with the market is that a lot of large-cap stocks appear to be growing earnings at a decent clip, but when you lift the hood, you find that a lot of that supposed EPS growth is being driven by financial engineering, aka share repurchases.

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The result of these share buybacks is a bit similar to what the Fed was doing with quantitative easing. It created artificial demand for stocks.

When a company does huge buybacks, it is artificially pushing the price of its stock higher. That’s fine if the stock is truly undervalued, but the truth is that’s rarely the case.

So finding value stocks, never mind finding growth-at-a-reasonable-price (GARP) stocks, has become a real challenge. Nevertheless, they are out there and I’ve found a surprising name here and there. Let’s take a look at three of the best value stocks in this very overpriced market.

Value Stocks to Buy: Apple (AAPL)


Is Apple Inc. (AAPL) one of these value stocks. Yes. Is it also a growth stock? Yes. That makes it a GARP stock, and I’m amazed to say that AAPL stock is likely to remain a GARP stock for quite some time. Part of the reason is the $153 billion in net cash it holds, which translates to $26 per share.

So when we back out that $26 from the current AAPL stock price of $127, we end with a net effective price of $101. On FY15 estimates of $9 per share, that puts Apple trading at 11x estimates for this year, and 10x next year’s earnings of $9.71. Long-term growth estimates call for 13.4% per year. That, plus the 1.6% yield, gives us a 15% long-term growth rate.

Yes, Apple has been engaging in buybacks, but AAPL stock has returned 30% annually since 2010, so I’m not complaining.

Getting a 15% grower at 11x estimates? I’m in.

Value Stocks to Buy: United Rentals (URI)

UnitedRentals185With the economy doing pretty well in certain sectors, it’s a good time to be in United Rentals (URI). It’s a mega-provider of equipment rentals across just about every possible industry, from industrial to construction to utilities to manufacturers.

URI rents to companies and government, alike. And it has a solid national footprint of 881 locations.

While URI stock is suffering due to the downturn in oil and gas rentals, it will pick up again at some point. URI stock also has share repurchases, but only about 4% or 5% of shares annually. That doesn’t dampen the projected long-term EPS growth of 15.73% too much.

If we go very conservative and knock that estimate down to 13%, and put a 13x valuation on FY15 projections of $8.19 per share, we get a $105 valuation. URI stock is at $90, implying 16% upside, so that puts it in the category of value stocks as far as I’m concerned.

Value Stocks to Buy: Amaya Gaming (AYA)

value-stocks-amaya-gaming-aya-stockI would like to give you a firm quantitative analysis of Amaya Gaming (AYA), but that’s difficult to do because it is one of these companies that’s all about cash flow and future prospects. Investors should be aware that it’s more of a speculative play, but I still consider it to be one of the best value stocks in the market.

AYA stock owns FullTilt Poker and PokerStars, which together comprise 70% of the online poker market. The company is moving into online casino and sports betting, as well. It’s aiming to become the biggest brand name in online gaming, and is inching closer to breaking back into the U.S. market with an approval expected from the New Jersey Gaming Commission later this year.

The company generated $340 million (Canadian) in Q1 and while net income came in at $23 million (again, Canadian), a lot of expenses were incurred as the company ramps its offerings. Again, this is a speculative value play, but patience should reward investors.

Lawrence Meyers owns shares of AAPL and AYA.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/07/value-stocks-overpriced-market/.

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