Small and Profitables Suggestions

Manhattan Associates, Inc. (MANH)

What it does: MANH is inserted in the software industry with specific applications, competing with names like SalesForce, Intuit, Autodesk, Zoom, etc. Manhattan Associates develops, sells, deploys, serves, and maintains software solutions to manage supply chains, inventory, and omni-channel operations for retailers, wholesalers, manufacturers, logistics providers. They have software for logistics management, warehouse management, planning, and inventory optimization.

The company also resells computer hardware, radio frequency terminal networks, radio frequency identification chip readers, printers, and bar code readers, among other peripherals. Most of its revenue (more than half) comes from services and the other part from its software, maintenance, and subscription licenses.

They have about 890 customers, and their main markets are the retail sector (home improvement), consumer goods, pharmaceuticals, the pet industry, and even the government. The company operates worldwide, but the Americas account for 80% of revenues. It was founded in 1990 and is headquartered in Atlanta, Georgia. It employs just over 3,500 employees. Currently, its market value is approximately $ 6.1 billion.

Big Numbers: In the past ten years, its revenues have jumped from $ 280 million to over $ 600 million (up more than 214%), growing gradually, year after year, but declining over the past three years. The decline is due to the transition from a model based on software sales to subscription and cloud hosting.

At first, customers who bought the software do not execute it. This transition takes some time. With that, the company noticed an inevitable drop in profit in the last three years. Still, it is worth noting that profit jumped 214% in 10 years.

Its operating profit margin is 18%, and the final profit of 14% has generated over $ 100 million of free cash flow since 2015. Since it is not capital intensive, it manages to deliver a Return on Equity and a Return On Invested Capital of 60%. It has managed to maintain its ROI by 60% since 2016. The company has positive net cash (Cash and Cash Equivalent minus Gross Debt equal to negative Net Debt, that is, it pays all obligations and there is still money left) of $ 90 million, showing that the debt does it’s a problem. The company prides itself on not carrying debt for the past 30 years.

Shares: In the year, its shares rose 14.7%, have already increased by 24.7% in 5 years and almost 2000% since the IPO. A beta of nearly 2x, showing that it is not so stable, which is a characteristic of the sector. The company deals at over 64.8x estimated profits and 32x price to book, so it’s no bargain.

Werner Enterprises, Inc. (WERN)

What it does: Werner Enterprises was founded in 1956 by Mr. C. L. Werner, who was a trucker. The company is headquartered in Omaha, Nebraska. It is a carrier dedicated to transporting cargo via trucks in the United States, Mexico, Canada, and even China.

It operates in two segments: (i) fleet operation with small, medium, large, refrigerated trucks. Whether for retail, consumer products, manufacturing, among others, accounting for approximately 75% of revenues. (ii) the Werner Logistics segment, which provides consultancy and logistical management expertise, rail transport through alliances, management of shipments using air and sea transport – accounts for approximately 25% of revenues.

By the end of 2019, the company had a fleet of 8,000 trucks, of which 7,460 were operated by the company and 540 owned and operated by independent contractors; 24,145 trailers owned by the company; and 33 intermodal transport trucks. It also employs over 12,000 people. Its slogan is, “We keep America moving.” It is the fifth-largest company in the USA with a market capitalization of approximately $ 3.2 billion.

Big Numbers: The moment has been good with the need and intensification of product deliveries to people due to the pandemic. If people can’t move, products can. The company is well diversified in terms of customers, with the top 10 accounting for 40% of its revenue. The most relevant sector is retail, which accounts for approximately 50% of revenue (discount and furniture stores).

However, the company has food & beverage sectors, which account for 17% of total revenues—a profit margin of 7% in line with the industry. Indebtedness is around 15% of shareholders’ equity. Return on Equity – ROE is 14%, and Return on Investment – ROI is 12%, behind only the most extensive and most consolidated in the sector, Old Dominion (ODFL). Their fleet is new, on average, four years, which means less need for Capex in the short term.

Shares: Its shares rose 11% in the year. In 5 years, it already has a 52.9% appreciation. It has a beta of 0.8x and pays quarterly dividends since 1988. Shares trade at 18x ​​profits, being the cheapest by multiples in the segment.

Asbury Automotive Group, Inc. (ABG)

What it does: Founded in 1996, the company is headquartered in Duluth, Georgia. Asbury Automotive Group, together with its subsidiaries, operates as an automotive retailer in the United States – in other words, it is a car dealer – and competes with some large ones such as CarMax (KMX), AutoNation (AN), Penske (PAG) and Vroom (VRM).

In addition to selling cars, it offers automotive products and services, such as repair and maintenance, spare parts, collision repair services. The company also provides financing and insurance. About 80% of revenues come from imported brands. They have 107 vehicle franchises, 25 collision centers, in addition to operating with different dealer brands. Most present on the USA’s west coast, Florida is its central state in revenue accounts, accounting for 39% of its sales. They operate in different brands, but Honda, Toyota, and Ford are the three main ones. The company is currently worth approximately $ 2.4 billion on the US stock exchange.

Big Numbers: Big Numbers: Its revenues have doubled in the past ten years, reaching approximately $ 7 billion. Profit went from $ 27 million to $ 160 million in the past 12 months. That is, multiplied by almost x6.

Although car sales represent 84% of sales, it accounts for only 31% of operating profit. Much of their profit comes from services (41%), financing, and insurance (28%), which they have been growing in recent years. Other than that, it has positioned itself as an omnichannel channel with an increasing use of online service tagging. To be more precise, from 2016 to now, online service booking grew by 460%. Sector margins are low – net margin of 2.3%. So the company probably wins by its capital turnover. It manages to deliver a Return on Equity – ROE of 24% and a Return on Investment – ROI of 11%.

Shares: In the year, its shares rose by 5.6%. In 2 years, the percentage had a 73.9% increase, and since the IPO, the growth has been 1529.1%. It trades at 11.3x current profits and 8.7x estimated. The company does not pay dividends, but it was repurchasing its shares in approximately 120 million in 2018 so far.

Fidelity National Financial, Inc. (FNF)

What it does: Founded in 1847, the company is headquartered in Jacksonville, Florida. FNF is an insurance company, but with a specific focus on securities insurance, especially in the real estate segment: mortgage insurance, bond insurance, etc.

They are also vital in the real estate business through mortgage transaction services, refinancing, and real estate brokerage. It is a particular segment, and they are the largest in the USA, with a 33% market share – they even have a 60% share in some states like Arkansas, for example.

In the USA, the lender requires the borrower to pay for insurance in most cases. Like everything in insurance, the question is to measure risk and its controls. So they seek to “protect” themselves through geographic diversification (states) and products.

The real estate segment indirectly benefits from the American residential component’s good times, with increased sales and real estate refinancing. They also have a smaller operation, with a focus on pension and life insurance. Another relevant point is to monitor the investments made by the company. This is the business of an insurance company, managing money for any future needs. Its portfolio is well-diversified, with 21% invested in shares. The company is worth approximately $ 9.9 billion on the US stock exchange.

Big Numbers: They grew in revenue by 80% from 2011 to now, from $ 4.8 billion to $ 8.6 billion. They went from a loss in 2008 to a profit of $ 840 million in the last 12 months with a net margin close to 10%.

They point out that their operating margins are appreciably higher than that of competitors. 15.2% ROE is good for its segment and places it among the top 10 ROE in the insurance industry.

If, in the short term, lower interest rates put on negative pressure, on the other hand, the volume of activity in the real estate sector, genuine estate refinancing, helps to compensate positively

Shares: In the year, shares fall 26%, and with that, they trade at low multiples – but in line with the reality of her sector. P/E of 10.3x, 1.4x price on equity value, and with a yield of 3.99% – the company has paid dividends quarterly uninterrupted since 1995. In the last five years, the performance has been in line with S&P, and since the IPO, it has returned 157.9%.

Williams-Sonoma, Inc. (WSM)

What it does: Founded in 1956 and headquartered in San Francisco, California. Williams-Sonoma is a retailer that offers several products for the home, focusing on the line of utensils. Comparisons are always imperfect and depend on each one’s opinion, but we could compare with Camicado or Zara Home.

In other words, you can say that it is a home products store, but with a more upscale footprint. In the slogan, they position themselves as a company with a digital footprint, concerned with sustainability and in sound design, “The world’s largest digital-first, design-led, sustainable home retailer.”

It has 614 stores, including 20 stores in Canada, 19 stores in Australia, three stores in the United Kingdom, 129 franchised stores, and e-commerce sites in several countries in the Middle East, the Philippines, Mexico, and South Korea. Like all companies, it has been working to transform its operation into the most digital possible.

Last year they reached 50% of sales in the online universe. They argue that the market is still quite fragmented, and with sales going on in local players, they believe there is still room to grow. The American market for household items reaches a value of $ 200 billion, and they are behind Bed Bath and Beyond (BBBY) in terms of share, with 7% of the market. Currently, its market value is approximately $ 7.1 billion.

Big Numbers: The company delivered average annual revenue growth of 6% a.a. since 2010, with revenues reaching close to $ 6 billion. In the same period, its profit grew by 11%. Despite the low-profit margin – a net margin of 6% (a characteristic of the sector), it managed to deliver satisfactory profitability in its operations—30% ROE and 24% ROI.

E-commerce has been growing in the double digits, reaching a 70% share of sales. As its public is of higher income, they tend to suffer less in times of crisis. Net Debt/EBITDA ratio of 1.4x is very manageable and far from being a danger to your financial health.

Shares: Its shares are up 25% this year and 31% in the last 12 months; traded at a P/L forward of 15.7x and currently of 18.3x. The current 2.2% Yield dividend, paid quarterly uninterruptedly since 2006, has grown over the past seven years.

The Scotts Miracle-Gro Company (SMG)

What it does: The Ohio-based company was founded in 1868, with more than 150 years of history. Scotts Miracle-Gro (SMG) is a supplier of gardening products, lawn, horticulture focusing on sales to the end consumer and fertilizers, fertilizers, seeds, pest control, and the like.

Relatively easy to understand, right? It is one of the most used brands in North America. Some of its brands are Scotts, Turf Builder, Miracle-Gro. They have an exclusive contract with Monsanto to market and distribute Monsanto’s consumer products in the US and other countries.

The company’s three largest customers are Home Depot (HD), Lowe’s (LOW), and Walmart (WMT). More than 70% of the company’s revenue comes from the US retail consumer. They also have a hydroponic gardening arm, which is hydroponic gardening – basically planting without soil, in an aqueous solution with the minerals necessary for the plant to grow – that today accounts for just over 20% of the revenues. Currently, its market value is approximately $ 8.9 billion.

Big Numbers: The company has a more stable growth profile with revenues growing 8% on average from 2014 to the present, but has accelerated in the last quarter due to the more significant presence of people in their homes due to the world pandemic and the possibility of spending more time in gardening and home improvement.

Profitability followed and, in the same period, profits grew an average of 9% per year. The company has a profit margin of approximately 9% and a return on invested capital (ROIC) of 11%. But, as they are strong cash generators and have a business that does not require massive investments, they came to buy back shares, in addition to paying dividends.

Looking ahead, they advocate that millennials tend to invest more in gardening, mostly focused on personal horticulture (the idea of growing your food). In this sense, they have invested in less offensive products and pesticides and are more present in the social world. Other than that, there is a particular growth trend in hydroponic gardening that they have been surfing well.

Shares: Its shares are up 56.5% in the year, 151.9% in 5 years, and 534.4% since the IPO in 2003. It trades at 24.2x earnings today and 19.6x considering estimated payments. Dividend yield of 1.51%, paying quarterly uninterruptedly since 2005 and with the value of dividends having grown for the last ten years.

ENTEGRIS INC. (ENTG) inseparable

What it does: Founded in 1966, the company is headquartered in Billerica, Massachusetts. It is difficult to explain what it does, but it shows that we go outside our comfort zone to find the assets. Entegris is part of a segment/industry of select chemicals applied and used in the semiconductor and microelectronics industry.

They provide micro contamination control products and advanced material handling solutions for semiconductor manufacturing processes and other high-tech industries. For example, they are high performance and high purity chemicals, gases, and materials used in micro components’ manufacturing processes.

They have diverse customers, including semiconductor manufacturers, gas and chemical manufacturing companies, high-precision electronics manufacturers and flat-panel monitor equipment manufacturers, component and device manufacturers for hard disk drives. Suppliers in the solar energy and life sciences industries, glass manufacturers. Aerospace manufacturers and manufacturers of biomedical implantation devices. They believe that the next driver of growth is the internet of things. They operate in North America, Taiwan, South Korea, Japan, China, Europe, and Southeast Asia. The company is worth approximately $ 11.4 billion on the US stock exchange, ranking among the top 10 in its industry.

Big Numbers: Company’s revenues have been growing consistently over the past ten years, from $ 400 million at the end of 2009 to $ 1.7 billion in the past 12 months. That is, it has more than tripled its revenues in the last ten years. In that same period, EBITDA went from practically zero to $ 460 million in the previous 12 months. The company became profitable, with only three-quarters of losses in the last ten years.

The last 12 months were $ 227 million, with a net margin of 14% and ROE of approximately 20%. The company has $ 650 million of net debt, which is equivalent to 1.3x its EBITDA. That is, in one year and four months, its debt would be zeroed.

Currently, some of its customers are Taiwan Semiconductor, Samsung, ST Microelectronics, and ASML. The top 10 customers account for just over 40% of revenue.

Shares: In the year, its shares accumulated 69.7%, and in 12 months, 77.2%. Since the IPO, it has had a return of 712.3%. It trades at 44.9x profits, but at 31x estimated considering the expected profit growth.

The New York Times Company (NYT)

What it does: Founded in 1896, NYT, as its name suggests, is headquartered in New York. Everyone should know the company, and it is easy to understand its business. The New York Times Company provides news and information to readers and viewers on multiple platforms worldwide.

They earn money through the subscription of their physical or digital content – it represents 60% of revenue, in addition to ads (advertising) – the other 40% of revenue. The company uses The New York Times (The Times), a daily newspaper in the United States, and the international edition of The Times and operates the NYTimes.com website.

They also have NYT Live, a platform for their live journalism. It operates Wirecutter, a product review and recommendation website that serves as a guide for technology equipment, household products, and other consumer goods. They also have a digital marketing agency, in addition to other products and services. In the last few years, they have sold several businesses to focus on what they already have and grow online with quality journalism.

They decreased in size to reduce debt and gain quality. In all, they have just over 6.5 million subscribers, spread over more than 250 countries, and are on track to reach their 10MM target. The company is worth approximately $ 6.3 billion.

Big Numbers: Considering that they have changed a lot with reducing their size in the last years, the analysis from 2012 onwards is necessary. Since then, they have delivered some revenue growth amid the migration from the traditional model (paper) to online.

Roughly speaking, an increase of almost 30% in revenue in these seven years. Profit has not grown; it is true. But still, the company has remained profitable all these years.

Since 2012 they have always made a profit when you look at the 12-month photo. What is interesting about their numbers is to see that they have managed to grow digitally.

In 2012 they had 600 thousand subscribers, and today almost 10x that. In 8 years, they have grown their digital base by 10x!

Besides, in the last two quarters, they have surprised positively. They continue to lose subscribers from the printed version, but the drop in revenue on this channel is low. While this business does not die, they will reinvent themselves and grow revenue in another medium.

The return on equity has been keeping above 10% for some time. Another exciting thing is that they have $ 432 million in cash and zero debt, which ensures that the company is fully able to continue to exist without risks with debt or creditors.

Shares: The shares accumulated a 20% increase in 192.7% in 5 years. Dividend Yield is not high (0.6%), but they have maintained their regularity, has paid dividends since 2013, every quarter on an uninterrupted basis. Remembering that this is not a guarantee that they will continue making these payments. Deals at 40.9x current profits and 3.5x your sales. Besides, it has a beta of 0.9x, a more stable stock, which fluctuates less than the market.

Enphase Energy, Inc. (ENPH)

What it does: Founded in 2006, debuted on Nasdaq in 2012, and is headquartered in Fremont, California. Essentially, it is a solar energy company for homes that works through control via app and integrates, for example, with other devices, such as Alexa.

The company offers a semiconductor-based microinverter, which converts energy at the individual solar module level and combines its proprietary network and software technologies to provide energy monitoring and control services. Explaining better, a differential of their system is that the traditional solar energy methods need to be connected and work together with the electric grid.

You generate energy through the solar panels and throw it into the system. At the end of the month, take stock to see how much it generated and consumed. The point is that when a hurricane or anything that interrupts the system comes, you are left without light! They have a converter that, when it happens, you can convert the energy generated for use in your home, allied through a battery system. It has around 600 employees and operates in 20 countries. Currently, its market value is approximately $ 14.9 billion.

Big Numbers: Revenues went from $ 63 million in 2010 to $ 722 million in the past 12 months. The company multiplied in size by 10x, more than 1000% revenue growth, or almost 30% a.a. uninterrupted. In terms of cash generation and profit, investment is more recent.

From 2018, they turned into positive EBITDA, and it was also in 2018 that they had their first profit. In the second quarter of 2020, they still had a $ 47 million loss but accumulated $ 170 million in the last 12 months. As a result, ROE reached 61% and ROI 46%, a net margin of 23%. They have net cash of $ 370 million.

In July, they announced an agreement with panel maker Maxeons to allow their microinverters to be attached to the panels already at the factory. Therefore, they do not need to be reinstalled.

Shares: In the year, its shares rose 347%, and in the last two years, its shares have already enjoyed an incredible 2053% appreciation. But it trades at P/L 94x and a 64.9x forward. It is the second-largest in the sector.

GRACO INC. (GGG)

What it does: Founded in 1926 and headquartered in Minneapolis, Minnesota. Graco manufactures and markets systems and equipment used to move, measure, control, and spray fluids and powdered materials worldwide. It is a particular segment, but with operations in several categories. For example, in the industrial sector, its systems are used to spray polyurethane foam and coatings, sealants, adhesives, resin molding systems.

It also provides equipment for ink circulation controls, coating various components, pumps for moving and dispensing chemicals, oil and natural gas, lubricants, and other fluids.

Finally, its performance is extensive, as well as diversifying the range of customers. The slogan says a lot about their performance: “Graco is part of your everyday life.” In terms of revenue, 48% comes from the construction segment, 16% from the industry, and 11% from automotive. The company operates worldwide, with 61% in North America and 22% in Europe and the Middle East. Currently, its market value is approximately $ 11.3 billion.

Big Numbers: The company has delivered average revenue growth of 5.5% over the past 20 years. In the past ten years, revenues have gone from $ 650 million to $ 1.5 billion. That is, they have almost multiplied by 3x. Profits did not follow a straight and stable line and grew from $ 80 million to $ 270 million in the same period. Except for 4Q16, it has continued to deliver profits from 2005 to all quarters.

Deliver 28% ROE and 30% ROI. It has almost the same amount of debt in cash. Therefore, it is not leveraged at all.

In the past eight years, the company has made 16 acquisitions, an average of one each semester. Their strategic plan aims to achieve a 12% growth in revenues and profits for the coming years.

Shares: Its shares rise 29.4% in the year, 43.1% in 12 months, 178.8% in 5 years, and 971.2% since its IPO in 1986. With that, today, the shares trade at 38.8x profits, 9.7x Book, and 7x sales. It has a dividend yield of 1% paying uninterrupted dividends since 1993.

Packaging Corporation of America (PKG)

What it does: Founded in 1867, PKG has 153 years of history and is headquartered in Lake Forest, Illinois. It manufactures and sells cardboard packaging in the United States. There are several products of cardboard and corrugated cardboard packaging. Even box for manufactured products, packaging for meats, fruits, processed foods, drinks. It also manufactures office and printing papers. It currently has over 14,000 employees and has a market cap of approximately $ 12 billion.

Big Numbers: In the past ten years, its revenues have grown 200%, reaching $ 6.7 billion. In the same period, profitability rose from $ 1.84 / share to more than $ 8/share, up 334.8%. However, in recent quarters it has been suffering and drops to $ 5.41.

Even so, the company has an ROE of 15%, and its net equity has practically tripled in the last ten years. The company’s profit margins are low, but this is characteristic of the segment. They sell cardboard boxes, and there is not much-added value or technology built into the product. The company has some debt, but that is about 1.4x its operating cash generation (EBITDA).

Shares: In the year, its shares increased by 13.3%, while in the last five years, it delivered an appreciation of 96.4%. Since its IPO in 2000, it has provided a 613.7% return to its shareholders. The company pays quarterly dividends and currently has a 2.4% dividend yield in the last 12 months. It has paid dividends since 2005, but we believe the track record is outstanding. He currently trades at 25x profits, 3.7x price to book, and 1.8x sales.