Looking for Value Stocks (BBY, DPZ, JKS)

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After the markets have been on fire and after valuation concerns are starting to grow among investors in a world full of international strife, maybe it is time to consider value stocks.  We have run several screens and come up with about 20 companies in different business sectors and segments of the economy whose shares initially showed up as having the qualities that value investors look for.  All have some caveats, but they actually all still have some growth characteristics as well.

We are going to feature several more screens in the coming days and we are breaking these out sector by sector.  Our first list of feature stocks for value investors includes Best Buy Co. Inc. (NYSE: BBY) in retail, Domino’s Pizza, Inc. (NYSE: DPZ) in restaurants and casual dining, and JinkoSolar Holding Co. Ltd. (NYSE: JKS) in solar.  Admittedly, there are caveats on each of these.  That is generally the case when it comes to looking for value stocks.

Best Buy Co. Inc. (NYSE: BBY) is likely to feel like a painful lecture when you consider a value stock versus stock performance.  The stock has performed like a pig after its last two earnings reports and the fear is now that the PC sales are continuing to slow.  It carries Super-HD TV, PCs and peripherals, home appliances, smartphones, Apple products, and everything else.  It is just is stuck in the weeds as far as its growth and some of the cyclical benefits seem to be skipping Best Buy.  Any time that technology and retail stocks surface in a value screen, there is generally a reason. 

Sales grew during the recession but the fiscal Feb-2011 revenues of $50.27 billion compared to $49.69 billion a year ago and this figure is expected to be about $51.9 billion for the next year and almost $53.2 billion a year ahead.  The headwinds are obvious: average selling price in consumer electronics declines through time, PC sales are slowing, customers are going to the Apple stores, and on and on.

What Best Buy still has going for it is that analysts are actually seeing earnings growth due to cost management.  This is despite a drop in estimates as well.  The FEB-2012 and FEB-2013 fiscal earnings estimates from Thomson Reuters are $3.46 EPS and $3.69 EPS respectively.  If you blend the two forward years, Best Buy trades at only about 8-times earnings based on a $28.64 share price.  This stock seems to see lower share prices each week and its 52-week trading range is $28.09 to $48.83.  Its dividend yield is now 2.1% and analysts have a consensus price target of about $37.25 versus $28.64 today.

At $28.64 we can only assume and expect that guidance and sales will remain weak for some time and there may be risks to its earnings or revenues ahead.  Tech and retail are often skipped in the value screens, particularly if consumers curb shopping outings die to higher gas prices and due to higher prices on life’s staples.  It may take another wave of real PC upgrades before Best Buy gets back in favor and we have no ambition of that happening in the next quarter or two.  That being said, Best Buy could end up being one of those stealth value stocks that get overlooked.