Companies in the transportation and automobile sector operate in areas ranging from airport services to auto part components. Most of these names tend to suffer from high cyclicality. Currently, Ship Finance International and LCI Industries are transportation companies I’ve identified as potentially undervalued, meaning their share price is below what these companies are actually worth. Smart investors can make money from this discrepancy by buying these shares, because they believe the current market prices will eventually move towards their true value. And those that want more exposure to the economic cycle should consider the following list of potentially undervalued cyclical stocks.
Ship Finance International Limited (NYSE:SFL)
Ship Finance International Limited owns and operates vessels and offshore related assets primarily in Bermuda, Cyprus, Malta, Liberia, Norway, the United Kingdom, and the Marshall Islands. Founded in 2003, and currently lead by Ole Hjertaker, the company provides employment to 11 people and has a market cap of USD $1.48B, putting it in the small-cap category.
SFL’s stock is now floating at around -86% less than its actual value of $104.33, at a price of US$14.40, according to my discounted cash flow model. This discrepancy gives us a chance to invest in SFL at a discount. What’s even more appeal is that SFL’s PE ratio is trading at 13.6x while its Shipping peer level trades at, 16.3x meaning that relative to other stocks in the industry, we can purchase SFL’s shares for cheaper. SFL is also a financially robust company, as current assets can cover liabilities in the near term and over the long run. Finally, its debt relative to equity is 150.02%, which has been reducing over the past couple of years revealing its capability to pay down its debt. More detail on Ship Finance International here.
LCI Industries (NYSE:LCII)
LCI Industries, along with its subsidiaries, manufactures and supplies components for the manufacturers of recreational vehicles (RVs) and adjacent industries in the United States and internationally. Founded in 1962, and currently lead by Jason Lippert, the company now has 9,852 employees and with the company’s market capitalisation at USD $2.32B, we can put it in the mid-cap group.
LCII’s stock is now hovering at around -84% beneath its real value of $554.87, at a price tag of US$89.95, based on my discounted cash flow model. This discrepancy signals a potential opportunity to buy LCII shares at a low price. In terms of relative valuation, LCII’s PE ratio stands at around 16.46x while its index peer level trades at, 18.33x suggesting that relative to its competitors, we can purchase LCII’s shares for cheaper. LCII is also strong financially, with current assets covering liabilities in the near term and over the long run.
Interested in LCI Industries? Find out more here.
Tenneco Inc. (NYSE:TEN)
Tenneco Inc. designs, manufactures, and distributes clean air and ride performance products and systems for light vehicle, commercial truck, off-highway, and other vehicle applications worldwide. Founded in 1987, and currently lead by Brian Kesseler, the company now has 32,000 employees and with the stock’s market cap sitting at USD $2.45B, it comes under the mid-cap group.
TEN’s stock is now trading at -70% below its actual worth of $157.42, at a price tag of US$47.04, based on my discounted cash flow model. This discrepancy gives us a chance to invest in TEN at a discount. What’s even more appeal is that TEN’s PE ratio is currently around 11.91x while its Auto Components peer level trades at, 15.34x suggesting that relative to other stocks in the industry, TEN can be bought at a cheaper price right now. TEN is also in great financial shape, as near-term assets sufficiently cover liabilities in the near future as well as in the long run. Finally, its debt relative to equity is 169.60%, which has been reducing for the past few years indicating TEN’s ability to pay down its debt. Continue research on Tenneco here.
For more financially sound, undervalued companies to add to your portfolio, explore this interactive list of undervalued stocks.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.