Back in the peak bull days of 2013, it seemed like you could buy just about anything and its price would increase. It’s safe to say those days are gone as the market has rediscovered volatility. The S&P 500 is down nearly 3% so far this year and was down 9% just a few weeks ago. More than ever, investors that want to make money in the stock market need to do their due diligence and find companies with strong economic profits and cheap valuations.
Our past 48 long calls have outperformed the market by an average of 4 percentage points, increasing about 1% compared to a 3% loss for the S&P 500. Five of our long calls over the past year stand out for their impressive returns and continued stability. Investors should take another look at these five stocks that are up 10% or more since our original calls and still earn an Attractive-or-better rating.
Photo Credit: Jonathan Warner (Flickr)
Universal Insurance Holdings (UVE: $34/share)
We love companies that consistently earn a strong return on invested capital (ROIC) and UVE has an impressive record here. Its current ROIC of 43% ranks highest of the 45 property and casualty insurers we cover, and since 2007 it’s only earned an ROIC below 20% once, in 2007. This long-term track record of efficiency led us to recommend UVE to investors in mid-July.
Since then, the stock has risen by 27% on the back of strong earnings and a $10 million buyback announcement. Over this same time, the market has dropped nearly 6%. Nothing has changed about the quality of the company and best of all the valuation remains appealing.
UVE has a price to economic book value (PEBV) of just 1.2, which implies that the market expects the company to grow after-tax operating profit (NOPAT) by no more than 20% for the remainder of its corporate life. Given the fact that UVE has more than doubled its NOPAT in just the past two years, we believe it can continue to exceed market expectations.
Foot Locker (FL: $70/share)
