Market Recap
Major US indices were slightly up midway through Tuesday as investors await the latest policy decisions from the Federal Reserve due Wednesday. A recent USA Today article suggests that there’s a 75% chance the Fed will keep interest rates unchanged at least for another three months.
So what to expect Wednesday?
Wednesday’s Margin Of Safety: 5 Stocks to Watch
The article further explains how this scenario is already priced into the market implying that there will be little movement from major indices if this scenario does in fact play out. However, while the overall market may not move much, there are a few big name stocks expected to report earnings on Wednesday that currently trade off their intrinsic values. Here are the five stocks and their respective margin of safety.
Steelcase (NYSE:SCS) looks to be over 45% undervalued. The company’s EBITDA multiples trade at a discount to its sector and peer group: HNI (NYSE:HNI), Knoll (NYSE:KNL), Leggett & Platt (NYSE:LEG) and Herman Miller (Nasdaq:MLHR).
<img src='http://res.cloudinary.com/finbox/image/upload/v1474400430/SCS_Chart_gu9m7a.jpg' alt= ‘SCS Fair Value Chart’>
Bed Bath & Beyond (Nasdaq:BBBY) appears to be over 40% undervalued. The company’s stock price has steadily fallen over the last three years while return on equity (ROE) and return on invested capital (ROIC) have both remained above 20% during this period.
<img src='http://res.cloudinary.com/finbox/image/upload/v1474400410/BBBY_Chart_vipwx1.jpg' alt= ‘BBBY Fair Value Chart’>
Herman Miller (Nasdaq:MLHR) has over 10% margin of safety prior to Wednesday’s expected earnings announcement. Similar to Steelcase, Herman Miller’s valuation multiples also trade at a discount to HNI, Knoll and Leggett & Platt.
<img src='http://res.cloudinary.com/finbox/image/upload/v1474400420/MLHR_Chart_ixohh7.jpg' alt= ‘MLHR Fair Value Chart’>
General Mills (NYSE:GIS) looks to be approximately 5% overvalued. The chart below highlights the company’s decreasing revenue and EBITDA growth trends over the last 10 years.
<img src='http://res.cloudinary.com/finbox/image/upload/v1474400418/GIS_Chart_stuqon.jpg' alt= ‘GIS Fair Value Chart’>
Red Hat (NYSE:RHT) is trading with a negative 10% margin of safety prior to Wednesday’s earnings. The company’s price to earnings (PE) multiples trade at a high premium to its sector and peer group: CA (Nasdaq:CA), Citrix Systems (Nasdaq:CTXS) and VMware (NYSE:VMW).
<img src='http://res.cloudinary.com/finbox/image/upload/v1474400424/RHT_Chart_fabyff.jpg' alt= ‘RHT Fair Value Chart’>
Value investors may want to look at these stocks prior to Wednesday’s earnings.
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Article written by Matt Hogan.
Investors are always reminded that before making any investment, you should do your own proper due diligence on any name directly or indirectly mentioned in this article.
