Despite the continued uncertainty regarding inflation, interest rates, supply chains and a potential recession, consumer cyclical stocks appear to be performing well as the sector has gained around 3.54% year to date.
As such, investors may be interested in finding opportunities among undervalued consumer cyclical securities that have predictable performances.
The Undervalued Predictable Screener, a Premium GuruFocus feature, determines whether a stock is undervalued or overvalued based on two methods: discounted cash flow and discounted earnings.
According to both methods, companies with a discount higher than zero are consider undervalued, while discounts below zero are considered overvalued. The companies’ predictability rates are then determined based on their historical performance over the past decade.
The screener also looks for companies with predictability ranks of at least four out of five stars.
Based on these criteria, a number of stocks qualified for the screener as of June 22, including Penske Automotive Group Inc. (PAG, Financial), Taylor Morrison Home Corp. (TMHC, Financial), NVR Inc. (NVR, Financial), Cavco Industries Inc. (CVCO, Financial) and Carriage Services Inc. (CSV, Financial).
Penske Automotive
Shares of Penske Automotive (PAG, Financial) are currently trading 69% below the DCF value of $499 and 75% below the discounted earnings value of $621.
The Bloomfield Hills, Michigan-based transportation services company has a $10.82 billion market cap; its shares were trading around $156.85 on Thursday with a price-earnings ratio of 8.68, a price-book ratio of 2.51 and a price-sales ratio of 0.40.
The GF Value Line suggests the stock is modestly overvalued currently based on its historical ratios, past financial performance and analysts’ future earnings projections.
At 81 out of 100, the GF Score indicates the company has good outperformance potential. While it received high ranks for profitability and growth, the momentum and financial strength ratings are more moderate and value is low.
The company also has a four-star predictability rank. GuruFocus data shows companies with this rank return an average of 9.80% annually over a 10-year period.
Of the gurus invested in Penske, Mario Gabelli (Trades, Portfolio) has the largest holding with 0.66% of its outstanding shares. Murray Stahl (Trades, Portfolio), Keeley-Teton Advisors, LLC (Trades, Portfolio), Ray Dalio (Trades, Portfolio)’s Bridgewater Associates, Joel Greenblatt (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio) and Steven Cohen (Trades, Portfolio) also own the stock.
Taylor Morrison
Taylor Morrison (TMHC, Financial) shares are trading 69% below the DCF value of $152 and 85% below the discounted earnings value of $324.
The homebuilder headquartered in Scottsdale, Arizona has a market cap of $5.17 billion; its shares were trading around $47.36 on Thursday with a price-earnings ratio of 5.03, a price-book ratio of 1.07 and a price-sales ratio of 0.64.
According to the GF Value Line, the stock is significantly overvalued currently.
Further, the GF Score of 84 implies the company has good outperformance potential on the back of high profitability, growth and financial strength ranks, middling marks for momentum and a low value rating.
Taylor Morrison also has a four-star predictability rank.
With a 3.54% stake, Donald Smith & Co. is Taylor Morrison’s largest guru shareholder. Other top guru investors include Ken Fisher (Trades, Portfolio), Chuck Royce (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Hotchkis & Wiley and John Hussman (Trades, Portfolio).
NVR
Shares of NVR (NVR, Financial) are trading 68% below the DCF value of $18,599 and 63% below the discounted earnings value of $16,362.
The Reston, Virginia-based company, which builds single-family homes as well as town homes and condominiums, has a $19.58 billion market cap; its shares were trading around $6,026.85 on Thursday with a price-earnings ratio of 12.68, a price-book ratio of 5.08 and a price-sales ratio of 2.01.
Based on the GF Value Line, the stock appears to be fairly valued currently.
Driven by solid ratings for growth, profitability and financial strength as well as moderate value and momentum ranks, the company’s GF Score is 96. As such, NVR has high outperformance potential.
NVR also has a five-star predictability rank. GuruFocus research found companies with this rank return an average of 12.10% annually.
Diamond Hill Capital (Trades, Portfolio) is NVR’s largest guru shareholder with 3.59% of its outstanding shares. The stock is also being held by the Smead Value Fund (Trades, Portfolio), Tom Gayner (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies and Jefferies Group (Trades, Portfolio), among others.
Cavco Industries
Cavco Industries (CVCO, Financial) shares are trading 64% below the DCF value of $765 and 70% below the discounted earnings value of $927.
The producer of manufactured homes, which is headquartered in Phoenix, has a market cap of $2.40 billion; its shares were trading around $278.29 on Thursday with a price-earnings ratio of 10.33, a price-book ratio of 2.47 and a price-sales ratio of 1.14.
The GF Value Line suggests the stock is significantly undervalued currently.
The company has high outperformance potential with a GF Score of 98, receiving high ratings for four the criteria as well as a more moderate momentum rank.
Further, Cavco has a four-star predictability rank.
Holding 2.43% of its outstanding shares, Gabelli is the company’s largest guru shareholder. Cavco is also being held by Fisher, Royce, Simons’ firm, First Eagle Investment (Trades, Portfolio) and Greenblatt.
Carriage Services
Shares of Carriage Services (CSV, Financial) are trading 62% below its DCF value of $72 and 25% below its discounted earnings value of $36.
The Houston-based company, which provides funeral and cemetery services, has a $400.37 million market cap; its shares were trading around $27.16 on Thursday with a price-earnings ratio of 12.51, a price-book ratio of 2.75 and a price-sales ratio of 1.13.
According to the GF Value Line, the stock is a possible value trap currently. Therefore, potential investors should do thorough research before making a decision.
With a GF Score of 88, the company has good outperformance potential. It is being supported by high ratings for three of the criteria, though the momentum rank is more moderate and financial strength is low.
In addition, Carriage Services has a five-star predictability rank.
Simons’ firm is the largest guru shareholder of Carriage Services with 4.86% of its outstanding shares. Jones also owns the stock.
Additional opportunities
Other companies that qualified for the screener included Installed Building Products Inc. (IBP, Financial), M/I Homes Inc. (MHO, Financial), LKQ Corp. (LKQ, Financial), Toll Brothers Inc. (TOL, Financial) and AutoZone Inc. (AZO, Financial).
