4 stocks for long-term investors

Here are some picks with very low valuations relative to their 5-year growth prospects.

By TheStockAdvisors Dec 12, 2011 2:47PM
Image: Bull figurine on ascending line graph and list of share prices (© Adam Gault/OJO Images/Getty Images)By Stephen Quickel, US Investment Report

Our newest growth stock recommendations cover a wide range of industry sectors and market caps, with revenues ranging from $1 billion to $50 billion.

What they share, however, are five-year earnings growth prospects averaging close to 20% a year and very low price valuations. Here's a look at four of our latest ideas: AGCO (AGCO), Cisco Systems (CSCO), Genesco (GCO) and Triumph Group (TGI).

AGCO, a 20-year-old Georgia company, burst onto the scene in the early 1990s by acquiring and turning around a collection of aging, underperforming farm equipment companies nobody else wanted.

The share price slumped from $70 to $20 during the 2007 to 2009 recession. But it has bounced back from a recent low of $32 in early October to around $42 Monday as resurgent equipment purchases by farmers have pushed earnings back above $4 a share.

And with earnings expected to grow 19% a year and a price-to-earnings ratio of less than 10, we look for a move well into the $50-range or higher.

Soundly financed with excellent cash flow, AGCO has been diversifying from tractors and combines (75% of sales) into broader agricultural markets worldwide.

We’re taking a bit of a leap with networking giant Cisco. Quarter after quarter it reported discouraging results, cuttings its price in half from $27 in 2010 to $14 last summer.

Now it’s back around $18 or $19 (hitting $18.38 midday Monday) on a string of upbeat developments, including better quarterly earnings, a revamped switching portfolio and solid progress in its data center business.

Cost-cutting and product innovation in the face of stiff competition have also helped to win upgraded analyst ratings, with 26 of 45 firms calling CSCO a "buy" compared to 20 three months ago.

Estimated five-year earnings growth of 10% is only half of what we prefer in our stocks. However, for 2012 and 2013 we look for 15% a year. A price-to-earnings ratio of 10 makes this technology-rich mega-cap stock look attractive.

Genesco operates a regional chain of stores selling footwear, headwear, and accessories out of Nashville, Tenn. The 88-year-old retailer has excellent present-day prospects.

There’s nothing flashy about Genesco; it is simply a well-run business getting good results. Earnings growth is projected at a solid 16.5% a year.

Against those expectations, the stock is priced at just 13 times 2012 earnings with an attractive price/earnings-to-growth ratio of 0.80.

With the share price backing off from over $60 in the recent correction, and seven out of nine analysts calling it a "strong buy," we’ve added GCO to our list with an initial price target of $70 -- an implied gain of close to 30%.

Triumph Group of Berwyn, Penn., produces and services aircraft and aerospace products and systems worldwide, with revenues of over $3 billion.

It has weathered the stock market storms better than most in recent months, hitting a new 52-week high of $59.

Earnings are estimated to grow 14% a year, after a nearly 50% jump in 2011. Yet its price-to-earnings ratio is a mere 10.8 and its price/earnings-to-growth ratio is 0.78.

The Wall Street target price is $67, but we can see it topping $70 on a price-to-earnings multiple upgrade as earnings head above $5 and near $6 per share.

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