Few of September's star stocks look like bargains. But here are a few that do, according to John Dorfman, chairman of Thunderstorm Capital in Boston and a columnist for Bloomberg News.
A recent surge has carried stocks from losses to gains. Investors may not be smiling, but at least they're frowning less. The Standard & Poor's 500 Index is up 9% so far this month, and for the year it's gained 3%. In the past 30 days, about 20% of U.S. stocks have risen 10% or more.
Few of September's stars look like bargains. But here are a few that do, according to John Dorfman, chairman of Thunderstorm Capital in Boston and a columnist for Bloomberg News.
[Text by John Dorfman. The opinions expressed in this story are his own.)
UnitedHealth
With a market value of about $40 billion. UnitedHealth Group Inc. runs what it calls organized health systems. Revenue climbed to $87 billion last year from $37 billion five years earlier. Granted, much of the increase came through acquisitions by the Minnetonka, Minnesota-based company. Still, I'm impressed with a five-year earnings growth rate of 7% during a time when many businesses were thrown into reverse by the Great Recession.
Critics might say that some of the company's sales resulted from questionable tactics. This month the California Department of Insurance, expanding on a previous complaint, said UnitedHealth's PacifiCare Life and Health Insurance unit has committed almost 1 million violations. I don't believe that these accusations are a fair representation of the business practices of UnitedHealth Group as a whole. And.UnitedHealth Group stock looks quite attractive to me at 10 times earnings and less than 0.5 times revenue.
Corn Products
Corn Products International Inc. also managed to stay on its feet through the recession. Its five-year earnings growth rate is 7% and this year analysts expect it to have its second-best year ever, earning $2.60 a share.
You might expect a company based in Westchester, Illinois, to be provincial, but Corn Products gets almost 70% of its revenue from outside the U.S. The stock is up about 30% this year and sells for 14 times earnings.
Macy's
Macy's Inc., the second-largest U.S. department-store chain, has gained about 17% in September and is up about 36% this year. Its advance defies the conventional wisdom that most retailers can't do well until more people find jobs. While unemployment remains high, but U.S. retail sales edged up in August, and Macy's raised its profit guidance for the second time in four months.
The Cincinnati-based company expects to earn $1.89 a share in its current fiscal year. Its best year was 2006, when it had a profit of $3.24 a share while 2009 was its low point, with a loss of $11.40 a share.I think the stock will continue to surprise people pleasantly in the next few months. But investors should keep an eye on the debt level, which was an uncomfortable 166 percent of equity as of June 30.
Dorman Products
My final and perhaps most speculative choice, I recommend Dorman Products Inc., a maker of replacement auto parts, located in Colmar, Pennsylvania. In the past five years, Dorman's earnings rose at about a 9% annual clip. The company set an earnings record of $1.47 a share last year, and analysts expect $2.22 this year. I don't know when U.S. auto sales will again hit the pace of 16 million to 17 million vehicles a year posted from 2001 through 2006. In 2009, the figure was about 11 million.
In this case, what's bad for General Motors is good for Dorman. Fewer new-car sales means consumers are likely to buy more replacement parts to keep their old cars going. Dorman stock is up a whopping 82% this year, but it sells for just 14 times earnings.
[Disclosure note: Mr. Dorfman own shares in Dorman for clients and personally. He has no long or short positions in the other stocks discussed in this column.]
