Stock of the Week: A “Low-Tech” Contrarian Bet
Alpesh Patel|October 2, 2023
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The tech sector and Nasdaq have been on a tear for much of the year… but they both took a breather in September. And so will we… with this week’s Stock of the Week.
I’ve got my eye on a contrarian “low-tech” play… a surprising bet on the back-to-office trend.
Surprised? Hear me out…
Despite its low-tech industry, the company boasts impressive numbers. It has a presence all over the globe… the U.S., China, India, Canada, Mexico and more.
It has a market capitalization of $1.5 billion with revenues of $2.3 billion and profits of $123 million.
The stock is undervalued by about 60%… and recently broke out of a downtrend. I see it easily hitting its highs of just a few years ago once again.
Get all the details on the company – including its ticker – in my latest video.
Click on the image below to watch it.
Stock of the Week time, friends, and this week I have gone low-tech.
I just thought you might be a bit fed up with me mentioning artificial intelligence and deep technology companies every single time.
But actually, the reason I’ve done it is to show you – and we’re interested in diversification, aren’t we? – to show you there are good-quality companies that aren’t doing deep tech, deep tech, deep tech.
So the stock of the week is HNI Corporation (HNI).
Now, I’m Alpesh Patel, founder of a hedge fund, a private equity firm and a venture capital firm as well as GVI Investor. I see a lot of companies come across my desk, and I pick the ones for my Stock of the Week based on what my team has sent me and short-listed for me. And we’ve got one for you now.
So what did I like about this company? Well, I said low-tech, didn’t I? It’s a workplace furnishings company. It makes furniture, seating, storage, tables and architectural products. And you might think, “You really have gone low-tech here, Alpesh. Who goes to the offices anymore, so why would you get a commercial furnishings company?”
Well, the numbers, and that’s educational for you. A bit of contrarian thinking here as well.
The company operates obviously in the United States, the world’s largest economy… China, the world’s second-largest economy… and India, the world’s fifth-largest economy… as well as Canada, Hong Kong, Mexico and Taiwan.
Now, low-tech doesn’t mean low market cap or low sales or low profits. Market cap: $1.5 billion. Revenues: $2.3 billion. Profit, yeah, it’s got some of that as well, roughly around $123 million.
So a lot of things going for it.
What else caught my eye?
Well, my Growth-Value-Income indicator is my proprietary algorithm that measures the valuation of a company – and that’s the most important factor it gives weight to because we know from academic research and Nobel Prize-winning literature that valuations are the most predictive of future price movements, but they’re not the only thing, and they’re not guaranteed all the time to be the most predictive.
So we also look at growth and weigh that and income, cash flow, and so on.
Anyway, it’s got a 9 out of 10. As long as it’s 7 or higher, I’m fine with it. Forecast P/E is a multiple of 15.7. That means the current share price is 15.7 times the forecast profitability. It’s not too bad for a furniture company – that’s fine.
CROCI, cash return on capital invested, was invented by Deutsche Bank and is used by Goldman Sachs Wealth Management. Click here to see why that’s important. It’s a little bit low here – the CROCI is only 1.2%. So it’s generating cash on capital but not as much as it could be. Obviously, if you look at my GVI Investor picks, I’ve got a very high bar and standard.
It’s up over the last six months. Some momentum’s in place. Sortino, the measure of average return versus risk, is 0.1. Again, I would’ve preferred it a bit higher.
Low volatility, though only 12%, is good. As for the stock price, while it’s had this downward trend for a long time – I say long time, but let’s be specific, since about May, June 2021 – it’s now broken out of that, and it really broke out of it definitively in the last few weeks. And so I’m looking at this going back to the highs of May 2021 if not more.
When we look at discounted cash flow as a measure of valuation, we see it’s 66% undervalued on a discounted cash flow basis. Profits are forecast to grow, and it pays a reliable dividend. All very good in that regard.
So you’ve got a lot going for the company, and hopefully you’ve learned something educational here as well in terms of the factors and metrics to look for when looking at stocks.
And not every stock has every box ticked there, but with GVI Investor, we really look to raise the bar and be very, very picky indeed.
Thank you very much, and I will speak to you soon with another Stock of the Week.
Note: Alpesh isn’t the only Manward expert looking at contrarian plays for big results… On October 5 at 2 p.m. ET, Manward’s Robert Ross will pull back the curtain on a unique set of investments that have the potential for 10,000% gains in as little as five years. During his FREE Breakout Fortunes Summit, he’ll tell you about the ONE controversial factor that results in the biggest gains in the market. Click here for more details… and to sign up for his free event.