Wall Street Forgot 2 Stocks — Profit From Its Mistake
Sometimes stocks get lost in the shuffle … like discarded clothes in the lost-and-found.
The S&P 500 Index is up 24% since March 23. Would you believe that despite that rise, eight companies saw gains of less than 5%?
There were a few reasons for this.
Some of the names that have done poorly — like Kroger, Dollar Tree and Costco — had done well before the market bottomed.
But Wall Street simply forgot to bid up some of the other poor performers.
And that provides us with an opportunity. There are some solid, low-risk deals out there.
I found two for you today…
Stock No. 1: This Health Care Company Is Super Cheap Right Now
The first is pharmaceutical company Mylan (Nasdaq: MYL). Mylan generates sales of $11.5 billion and has an $8.4 billion market cap.
With $1.6 billion in free cash flow, its “price to free cash flow” ratio is 5.4. That’s cheap!
Mylan is in the process of merging with Upjohn, a division of Pfizer.
Mylan investors will own 43% of the new company. That’s great news. But you wouldn’t know it by looking at Mylan’s share price:
MYL Is Just Starting to Recover
The companies announced the deal in July 2019. That’s the day with the greatest volume of shares traded in the bottom chart above.
Mylan closed at $21.43 per share that day. Shares later moved up to almost $23 in early February.
On April 14, they closed at $16.35.
Life is different since then, no doubt. But shares haven’t recouped much of their fall.
That makes them worth considering.
The New Mylan Will Be Better Than Ever
The name of the combined entity will be Viatris. (Just rolls off the tongue, doesn’t it?)
Just over half of sales will be branded products, and 34% will be generic. Viatris will also offer over-the-counter products.
The merger will generate $1 billion of savings annually by the fourth year. In addition to cutting costs, the companies will launch new products together and push existing products to the markets they aren’t in yet.
The new Mylan will have less debt, will pay a dividend and will buy back shares.
I suggest you look into Mylan at these prices. When it merges, the new company should create a lot of value.
The virus has pushed back the approval process a bit. But the deal should close before the end of the year.
Shares should see at least 30% upside once that happens.
Stock No. 2: This Tech Company Grows Its Sales Every Year
When I looked outside the S&P 500, I found another stock that fits this description.
Computer Services Inc. (OTC: CSVI) is a $1.1 billion company that provides software and solutions to banks and other finance firms. Founded in 1965 with three customers, it now has almost 1,200.
It’s down 5% since the market bottomed, though. And it hasn’t perked back up:
CVSI Is Still Near Its March Low
But its performance isn’t down at all.
Firms still need CSVI’s technology to find ways to grow revenue and operate more efficiently.
The company has shown it provides these services at a high level. It has grown its sales every year since 2000.
And it has increased its dividend for 47 years in a row.
In the year 2000, it paid investors $0.04 a share. Today’s dividend is 21 times that much, at $0.84 per share.
That’s a 2% yield. And history suggests the payout will increase at the company’s announcement in July.
As you can see, CSVI has a history of executing.
The stock will increase 20% when it returns to its February high. I expect that will occur within 12 months. And that dividend should grow as long as you hold shares.
Opportunities Like These Are Getting Harder to Find
Don’t be afraid to sift through the lost-and-found pile every now and then.
You can get lucky there and find an underpriced name … such as Mylan or Computer Services.
Today’s market has offered opportunities. You have to be willing to snatch them up, though. And they’re getting harder and harder to find.
Don’t miss this one!
For more opportunities amid the volatile times, check out my Profit Line service.
Editor, Profit Line
My parents are my heroes. A lot of people say that, but for me, it’s true. It’s because of them that I got my start in finance… My dad’s forte was business. We’d have long discussions about stocks, industries, and different types of investments. I didn’t know how to assess all these things when I was a kid, but thanks to my dad, I eventually learned.