I asked three Fool analysts to each name one stock they think is being overlooked by investors. If you're looking for stock ideas in this choppy market, here are three companies worth watching.
Jason Moser, Motley Fool analyst:
I am pretty surprised at the selloff Monsanto (NYSE: MON ) has witnessed lately. The year 2010 has not been kind to the purveyor of super-seed technology, but I think regulatory concerns and the recent repositioning of the Roundup business are overblown. The fact of the matter is, this company spends an average of $2.6 million per day on research and development and it has a pipeline strategy that continues to yield excellent products that will benefit farmers for years to come as land and water become even more precious resources.
While competitors such as Dow Chemical (NYSE: DOW ) continue to develop pipelines of their own, Monsanto maintains its competitive advantage through its size and ability to generate some serious cash flow. In addition, the company has an extremely valuable catalog of brands to complement its outstanding marketing and distribution network, which includes locations from Albania to Zimbabwe and everywhere in between. At around $46 per share, the market is sowing the seeds of doubt on this one and offering up a great opportunity for investors to get in at an excellent price.
Bryan Hinmon, Motley Fool analyst:
I love boring companies. This often leads me to behind-the-scenes businesses that people take for granted. One such business is credit and debit card payment processing. The folks that operate in this industry are making sure that when you "swipe it," the correct accounts are lined up and everyone involved (the issuing banks, the credit card company, and the merchant) all get paid promptly and accurately. While this sounds easy, it isn't, and most card issuers outsource this boring and complicated mess.
The best in the business is Total System Services (NYSE: TSS ) . Total System has, far and away, the best processing system in the industry, which allows it to sign long-term contracts and generate stable cash flow. The company is working on diversifying its revenue streams so bank consolidation and lost customers (which happens from time to time) won't hurt as much. The market is focusing on increased legislation (like the CARD Act and other proposed legislation) and bank consolidation and overlooking that TSS shares can be purchased dirt cheap right now.
At current prices, you can pick up shares of a high-quality and resilient company for only five times EV/EBITDA and 13 times depressed forward earnings. Plus, you're getting a super-healthy company -- Total System has more than twice as much cash than debt, which can't be said for its more leveraged competitors Heartland Payments and Global Payments (NYSE: GPN ) .
Alex Pape, Motley Fool analyst:
Sometimes, overlooked stocks are right under your nose. Other times, they are in New Zealand.
Kiwi-capital-based Auckland International Airport (Pink Sheets: ACKDF.PK) fits only the latter for most of us. AIA has a monopoly on international travel to and from Auckland and a monster share of all New Zealand international travel. As New Zealand is an island country, there are no substitutes for air travel; you can't drive or take a train across the border. Add in that AIA has already built the capacity to handle substantial growth and that legal procedures would make a competitor's attempt to break into the market near-impossible, and AIA has a moat as wide as Lake Taupo.
The moat is great, but the ability to stave off hungry competitors isn't worth much unless you have something good to keep them away from. And something good AIA has. The primary city it services, Auckland, is both the predominant New Zealand business center and the gateway to the country for all kinds of international visitors. So, while Mexican cousins Grupo Aeroportuario del Centro Norte (Nasdaq: OMAB ) and Grupo Aeroportuario del Sureste (NYSE: ASR ) rely heavily on the magnetism of the tourist destinations they service, AIA's traffic is a balanced mix of business and leisure travelers.
Also different from its Mexican brethren, AIA has a near-term catalyst: the 2011 Rugby World Cup, which will be hosted all over New Zealand over two months next fall. The event is expected to draw over 85,000 international fans to the country, a figure that could translate into nearly 300,000 passenger movements, which is the metric most meaningful to airports. Add in that AIA welcomes a steady 77% of all international travelers to New Zealand, and Auckland International Airport commands more of our attention, even from the other side of the globe.
Give us your overlooked stock using the comments section below.