Continue Reading Below
As always, remember that these aren’t recommendations. I have included companies with market capitalization in excess of $500mm, but the list may not be complete.
The group has performed well over the past year as well as the past five years, with only one decliner in 2012, one that came close to matching the S&P 500 and three that gained 23-68%. Over the past five years, one stock hasn't traded publicly and one has declined, but the other three have risen substantially despite a small market decline.
I have included a column for net debt to capital, and three of the five have little or no net debt, while one is relatively high at 51%. I also included some long-term sales and earnings growth data, suggesting reasonable growth
Finally, in the last two columns, we see that the PE ratios are a premium to the market, but they are in line with or below their 10-year medians. Also, note that the range of PE ratios is 17-22, similar to the one-year EPS growth rates.
eBAY (EBAY) is the best known auction site, but the biggest driver of its stock may actually be its Paypal unit. This stock is much, much larger than the rest. It's a market leader and could be interesting as an investment. I also think that it could potentially acquire one of the other companies.
Copart (CPRT) and Kar Auction (KAR) both enable insurance companies to dispose of cars that have been totaled. CPRT has more recently gone direct to consumers looking to sell their used cars. The company recently entered several different foreign markets. The management team here has substantial insider ownership and takes a very long-term view towards the business, which I believe is a positive.
Ritchie Brothers (RBA), which is based in Canada, has been the obvious weak performer. The company had a very strong record of growth prior to 2007, but the Great Recession weighed on its results. RBA hosts huge physical auctions at 44 different sites around the world, many with unreserved prices, and had 4.1mm different bidders in the first three quarters of the year. It has 110 locations in 25 countries and specializes in massive machinery and equipment for the transportation, agricultural, mining and other industries.
Liquidity Services (LQDT) is one I have followed closely for more than a year. The company helps the government get rid of surplus items, and it also caters to retailers looking to dispose of returned merchandise. More recently, it entered the market for helping Fortune 1000 companies rid themselves of unused assets after completing an acquisition. The company auctioned $864mm of merchandise in the fiscal year ending in September. In addition to a strong balance sheet, insiders have substantial ownership.
So, hopefully I have given a theme to consider and enough information to begin your own investigation to identify risks and potential opportunities.
Founder, Invest By Model and AB Analytical Services
TradeKing All-Star Commentator
Disclosure: Long LQDT in one or more models managed by the author at Invest By Model
At the time of publication and in the preceding month, TradeKing and the third-party content provider did not have ownership greater than 1% in any stocks mentioned here and do not have any other actual, material conflict of interest known at the time of publication. Neither TradeKing nor the third-party content provider, received compensation from a public offering or from investment banking services related to any companies mentioned here within the past 12 months, or expects to receive any in the next 3 months. Neither TradeKing nor the third party content provider engaged in market making in the securities mentioned here. TradeKing selects and defines as All-Stars certain independent market commentators who are recognized industry personalities and experienced traders. TradeKing All-Stars provide timely market commentary via the TradeKing All-Star blog at http://community.tradeking.com/members/tk-all-star/blogs. Each All-Star commentator's bio, related qualifications and disclosure as to their relationship with TradeKing can be found on the All-Star blog roster, available at http://community.tradeking.com/members/tk-all-star/details. The selection of All-Stars commentators is solely based on the quality and style of the content provided. TradeKing does not measure, endorse, or monitor the performance or correctness of any statement or recommendation made by independent All-Stars commentators on TradeKing.com. Supporting documentation for any claims made in this post will be supplied upon request by the author of the post, who is solely responsible for the views expressed here. Send a private message to All-Stars using the link below the profile image.
Any strategies discussed and examples using actual securities and price data are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy. In reading content in the Trader Network, you may gain ideas about when, where, and how to invest your money. Although you may discover new ideas or rationale that may be compelling, you must ultimately decide whether or not to put your own money at risk. Consider the following when making an investment decision: your financial and tax situation, your risk profile, and transaction costs.
Alan Brochstein maintains a business relationship with TradeKing.
All investments involve risk, losses may exceed the principal invested, and the past performance of a security, industry, sector, market, or financial product does not guarantee future results or returns. TradeKing provides self-directed investors with discount brokerage services, and does not make recommendations or offer investment, financial, legal or tax advice. You alone are responsible for evaluating the merits and risks associated with the use of TradeKing's systems, services or products.
© 2012 TradeKing Group, Inc. Securities offered through TradeKing, LLC. All rights reserved.