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5 Undervalued-Predictable Companies to Consider on Strong Job Growth

GuruFocus.com

In light of strong job growth in the health care and industrials sectors, five stocks listed in the Undervalued-Predictable Screener as of Friday were Snap-On Inc. (NYSE:SNA), Biogen Inc. (NASDAQ:BIIB), Mastech Digital (MHH), Union Pacific Corp. (NYSE:UNP) and Landstar System Inc. (NASDAQ:LSTR).


Dow rebounds from early selloff on strong jobs report

On Friday, the Dow Jones Industrial Average closed at 26,573.72, up 372.68 points from Thursday's close of 26,201.04 on the heels of strong job growth during the month of September.

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Friday's gain trimmed losses from earlier this week as investors grappled with weak manufacturing data. The Bureau of Labor Statistics reported the unemployment rate fell to 3.5%, matching the lowest level set in December 1969. Employment in health care and in professional and business services continued to trend up according to the report.

Undervalued-predictable screener identifies good opportunities

GuruFocus' Undervalued-Predictable Screener, a major Premium feature, lists companies that have a business predictability rank of at least four stars and trade below intrinsic value based on either the discounted free cash flow model or the discounted earnings model.

According to the Model Portfolios page, the Undervalued-Predictable model portfolio returned an annualized 9.35% per year over the past five years, outperforming the Standard & Poor's 500 Index's annualized return of 8.14% per year over the same period.

As of Friday, the Undervalued-Predictable Screener listed five companies in the health care and industrials sectors that are trading below their intrinsic value based on the discounted free cash flow model.

Snap-On

With a margin of safety of 45%, Snap-On ranks No. 1 on the list.

The Kenosha, Wisconsin-based company manufactures and sells tools, equipment, repair information and systems solutions primarily for independent vehicle repair centers, but also for new vehicle dealerships. GuruFocus ranks the company's profitability 9 out of 10 on several positive signs, which include expanding profit margins, a four-star business predictability rank and a return on equity that outperforms 89.60% of global competitors.

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John Rogers has the largest stake in Snap-On with approximately 840,000 shares.

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Biogen

With a margin of safety of 35%, Biogen ranks second on the list based on the discounted free cash flow model. Additionally, Biogen has a margin of safety of 71% based on the discounted earnings model.

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The Cambridge, Massachusetts-based company manufactures multiple sclerosis drugs like Avonex and Rituxan. GuruFocus ranks Biogen's profitability 10 out of 10 on several positive investing signs, which include a strong Piotroski F-score of 7, a five-star business predictability rank and operating margins that are near a 10-year high of 49.39% and outperform 98% of global competitors.

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Gurus with large holdings in Biogen include PRIMECAP Management (Trades, Portfolio) and the Vanguard Health Care Fund (Trades, Portfolio).

Mastech

With a margin of safety of 26%, Mastech ranks third on the list based on discounted free cash flow. Additionally, Mastech has a margin of safety of 46% based on the discounted earnings model.

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The Moon Township, Pennsylvania-based company provides information technology staffing services for both mainstream and digital technologies, and digital transformation services. GuruFocus ranks the company's profitability 8 out of 10 on several positive investing signs, which include a 4.5-star business predictability rank and a return on equity that outperforms 80.67% of global competitors.

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Despite strong profitability, Mastech's financial strength ranks 5 out of 10 as debt ratios that underperform over 80% of global competitors offset a strong Altman Z-score of 3.73.

Union Pacific

With a margin of safety of 24%, Union Pacific ranks fourth on the list.

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The Omaha, Nebraska-based company hauls coal, industrial products, intermodal containers, agriculture goods, chemicals and automotive goods. GuruFocus ranks Union Pacific's profitability 9 out of 10 on several positive investing signs, which include a five-star business predictability rank and operating margins that are near a 10-year high of 38.38% and are outperforming 93.45% of global competitors. Despite this, Union Pacific's financial strength ranks a poor 4 out of 10 on the heels of debt-to-equity ratios underperforming 78.98% of global competitors.

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Landstar

With a margin of safety of 13%, Landstar ranks fifth on the list.

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The Jacksonville, Florida-based company provides over-the-road truck transportation, rail intermodal, global air and ocean forwarding services. GuruFocus ranks the company's financial strength 8 out of 10 and profitability 9 out of 10 on several positive investing signs, which include a strong Piotroski F-score of 8, a solid Altman Z-score of 10.88, expanding operating margins and a four-star business predictability rank.

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Disclosure: Long Biogen.

Read more here:

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  • US Mega-Caps Fall to Begin 4th Quarter on Weak Manufacturing Data

  • 7 Chinese Net-Nets for China's 70th Anniversary



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This article first appeared on GuruFocus.