Color to the Numbers: Top Mid-Cap Value Stocks

Financial websites have given investors more tools than ever to screen the markets for stock ideas. But those screens only provide the raw numbers -- not the story behind them. What might look like the start of a trend could merely be a one-time blip. Let's enlist Motley Fool CAPS to color in the outlines these numbers create.

To find the cream of the crop of mid-cap value stocks with a solid financial foundation that trade at reasonable prices, we'll screen for stocks with:

  • Market cap between $1 billion and $10 billion.
  • A debt-to-equity ratio of less than 0.5.
  • Free cash flow of at least $100 million.
  • A projected five-year earnings growth rate of at least 15%.
  • A forward price-to-earnings ratio of less than 15.

Then we'll tap the collective intelligence of our 83,000-plus CAPS investors to see whether these companies present real opportunities -- or are priced low for a reason.

Opinions with the numbers
Here's a sampling from the list of stocks our screen pulled up today.

Company

Forward P/E

Free Cash Flow (in Millions)

CAPS Rating (out of 5)

Flextronics (NASDAQ:FLEX)

9.5

$403

*****

Allegheny Technologies (NYSE:ATI)

8.6

$254

*****

Network Appliance (NASDAQ:NTAP)

14.8

$729

***

LSI Corp

11.9

$145

***

Jabil Circuit (NYSE:JBL)

7.6

$283

***

Data from Yahoo! Finance. Star rankings from CAPS. All data as of Jan. 30.

Value in flexibility
A few firms on our value screen come in with forward earnings multiples even below the teens, warranting a closer look. Two of them actually compete against each other -- Flextronics and Jabil Circuit -- in the market for electronic products and circuit board manufacturing.

Most consumer electronics segments are highly competitive, which is a double-edged sword for companies in the electronics manufacturing services industry. While the cost-sensitive nature of the business gives more opportunities to outsourced manufacturers like Flextronics or Jabil, it also means high volumes need to make up for thin margins. The tight operating environment in the space makes for an unattractive investment to many investors, leading to earnings multiples that tend to be below average.

But is there value in individual players such as Jabil or Flextronics at this point? Many CAPS players think so. Jabil's stock has been beaten down to the tune of 40% since capping its fiscal year with lower profits back at the end of August 2007. Even with a strong customer base that includes Cisco (Nasdaq: CSCO  ) and Hewlett Packard (NYSE: HPQ  ) , more than 23% of CAPS All-Stars rating the company maintain a bearish outlook for the future.

Flextronics receives higher marks from the CAPS community, though. Its recent acquisition of Solectron gives the company more scale to compete effectively, and it appears to be paying off -- the company recently reported surprisingly profitable fiscal third-quarter results. Flextronics carries a five-star rating in CAPS, with 267 of the 278 investors rating the company believing it will beat the S&P going forward.

Tapping value
Another company on our list that is a major customer of electronics contract manufacturers is Network Appliance. The data-storage firm is valued significantly higher than supplier Jabil on a forward earnings basis, at 14.8, but the firm is expected to grow at a 19% rate over the next five years. Fellow Fool Tim Beyers thinks Network Appliance's low value -- compared to peer EMC (NYSE: EMC  ) -- and higher growth prospects make it one cheap growth stock.

Not all CAPS investors agree, though. Tough competition in a market sensitive to the larger economy gives some investors reason to be bearish on Network Appliance. Indeed, 11 of the 60 All-Stars rating the company believe it will underperform in the future by lagging the S&P.

Let 83,000 investors be the judge
The collective wisdom of a huge pool of investors can quickly add color to a whitewashed page of numbers. But even with an entire community of qualified opinions acting as the jury, individual investors are still the judge, and they should perform their own research.

Want to see your favorite screen results run through the wringer in the CAPS community? It's free to tap the knowledge base and even give your own opinion in Motley Fool CAPS.


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