Today, June 1, 2022, Dow Jones is trading at ~30,775, the S&P 500 at ~3,785, and Nasdaq at ~11,028. The market hasn’t reached a bottom yet, but it’s low enough to ask: where to find companies that are good to invest in?
That’s what we asked ourselves here at BigStocks.io and we came back with 5 cheap stocks issued by profitable and stable companies.
Let’s examine them, one by one…
1. Schnitzer Steel Industries Inc (NASDAQ: SCHN)
Schnitzer Steel Industries, founded in 1906 and headquartered in Portland, Oregon, is one of the biggest US ferrous and non-ferrous scrap metal recyclers. More specifically, it collects and recycles auto bodies, appliances, rail cars, construction demolition, and machinery.
Moreover, the company operates an auto-parts business that purchases obsolete vehicles and sells useful parts to retail customers. It also operates a steelmaking business that supplies construction-related products along the US West Coast.
Based on the 2 analysts’ 12-month median price target of $61.5 and the stock’s trading price, SCHN now has an 87.61% upside. The highest price target is $76 which represents a 131.84% upside and the lowest is $47 which represents a 43.38% upside.
The lowest price target seems very close to the potential of the stock in the short term. Now, the highest and median ones seem too bullish but can be realized in the mid term.
The company had an excellent run last year. It generated a 19.6% return on its equity and grew its revenue by 61% on a YoY basis. This looks even better when you consider its valuation.
The stock is only trading at 5.56 times its EPS and 1.09 times its book value. It cannot be emphasized enough how much the market has ignored the value of SCHN; hopefully not for much longer.
Schnitzer is also good for the long term as its current assets were last reported as 1.5 times its current liabilities and its interest before interests and taxes as 40 times its interest expense. On top of that, it has a conservative capital structure with a D/E ratio of 0.8x.
Source: SCHN Annual Report
2. La-Z-Boy Inc (NYSE: LZB)
La-Z-Boy Inc, founded in 1927 and headquartered in Monroe, Michigan, is a US manufacturer, distributor, and retailer of upholstery furniture products. It also produces reclining chairs and distributes residential furniture.
The company primarily does business in the US but also has secondary operations in Canada and other countries.
The company has two primary segments, among others:
- Wholesale (manufacturing and importing of upholstered furniture)
- Retail (selling upholstered and case goods furniture)
Most of the company’s sales are derived from its Wholesale segment.
Based on the 2 analysts’ 12-month median price target of $39 and the stock’s trading price, LZB now has a 64.69% upside. The highest price target is $46 which represents a 94.25% upside and the lowest is $32 which represents a 35.13% upside.
Both the highest and median price targets are too bullish and unlikely to be realized in the short term. The lowest one seems like a reasonable prediction, though.
This company had too good performance results to be ignored. It generated an 18.6% return on its equity and grew its revenue and EPS by 35.9% and 47.4% on a YoY basis, respectively.
Further, its stock is only trading at 7 times its EPS and 1.3 times its book value. While the market hasn’t appreciated the company’s fundamentals yet, we can’t say that this will go on for much longer.
Last, liquidity seems adequate and there’s not too much leverage (current ratio: 1.4x, interest coverage: 231x, D/E: 1.3x).
Source: LZB Annual Report
3. Cohu Inc (NASDAQ: COHU)
Cohu Inc, founded in 1947 and headquartered in Poway, California, provides semiconductor test equipment and services in China, the US, Malaysia, the Philippines, Taiwan, and internationally.
The company’s products include Semiconductor Handlers, Interface Products, semiconductor automated test equipment, probe heads and pins, Spares and Kits, and Bare Board PCB Test Systems.
It does business through two segments:
- Semiconductor Test and Inspection Equipment
- PCB Test Equipment
The majority of the company’s revenue is derived from the Semiconductor Test and Inspection Equipment segment.
Based on the 8 analysts’ 12-month median price target of $37 and the stock’s trading price, COHU now has a 33.57% upside. The highest price target is $55 which represents a 98.55% upside and the lowest is $28 which represents a 1.08% upside.
The lowest price target is unreasonable, considering the fundamentals of the company and the highest one represents a not realistic short-term upside. Here, the median price target is a good estimate and very likely to be realized.
The company’s stock price is trading at 8 times its EPS and 1.5 times its book value. This is too low and it seems unreasonable if you look at the performance.
Cohu generated an 18.9% return on its equity and grew its revenue by 39.5% on a YoY basis. No doubt, the stock needs more love right now.
Also, if you’re interested in holding this for the long term, its liquidity levels are very strong (current ratio: 3.9x, interest coverage: 31x) and it’s conservatively capitalized (D/E: 0.4x).
Source: COHU Annual Report
4. Quanex Building Products Corp (NYSE: NX)
Quanex Building Products Corp, founded in 1927 and based in Houston, Texas, manufactures components that are sold to original equipment manufacturers.
More specifically, it manufactures products like extruded vinyl profiles, window components with flexible insulating glass spacers, solar panel sealants, window and door screens, and precision-formed metal and wood products.
It operates through 3 segments:
- North American Fenestration (key revenue driver)
- European Fenestration
- North American Cabinet Components
Geographically, the company derives the majority of its revenue from the US.
Based on the 4 analysts’ 12-month median price target of $33 and the stock’s trading price, NX now has a 45.11% upside. The highest price target is $35 which represents a 53.91% upside and the lowest is $29 which represents a 27.52% upside.
Here, the lowest price target suggests the most likely short-term upside. The highest and median ones lean on a bit of optimism, but they could be realized within 12 months.
Quanex is a great pick for multiple reasons.
First, its price is just trading at 13.4 times its EPS and 1.8 times its book value. In absolute terms, the stock looks undervalued. But let’s put things into perspective…
The company generated a 13.6% return on its equity and grew revenue and EPS by 25.9% and 45.3% on a YoY basis, respectively.
Last, liquidity looks strong. The company’s last reported current assets were 1.6 times its current liabilities and it had an interest coverage of 32.3x. Its capital structure is also conservative enough (D/E: 0.7x).
Source: NX Annual Report
5. Alpha and Omega Semiconductor Ltd (NASDAQ: AOSL)
Alpha & Omega Semiconductor Ltd, founded in 1927 and based in Houston, Texas, is a designer, developer, and supplier of power semiconductor products made for computing, industrial applications, consumer electronics, and communication.
It generates revenue primarily from selling power semiconductors.
Based on the 3 analysts’ 12-month median price target of $42 and the stock’s trading price, AOSL now has a 38.43% upside. The highest price target is $70 which represents a 130.71% upside and the lowest is $40 which represents a 31.83% upside.
Both the median and lowest price targets are reasonable estimates, based on the company’s fundamentals. The highest one is too optimistic and unlikely to be realized within a year.
First of all, the company’s performance was decent last year. It generated an 11.25% return on its equity and grew its revenue by 41.3% on a YoY basis.
This performance looks even better in the light of the stock’s price though. It is currently trading at 14.2 times its EPS and 1.6 times its book value. Obviously, it looks undervalued and it cannot remain for too long if the company keeps being profitable.
Moreover, this is a great fit for long-term portfolios as its current ratio was last observed as 1.7x and its interest coverage as 16.6x. A conservative capital structure truly seals the deal though (D/E: 0.8x).
Source: AOSL Annual Report
Looking for More Growth Stock Ideas?
If you want more growth stock ideas, make sure you subscribe to our free newsletter where we offer you two per month.
Note that 3 of our last stock picks had a combined return of 382% and 90% of all of our stock ideas have been beating the market for the last 3 to 4 years.
Sign up for free today and don’t miss out on our next pick! Link to sign-up form