WealthLift’s Sentiment Index Loves This Stock
2012 has been a year of ups and downs for stock market aficionados, and that’s speaking lightly. There have been plenty of shooting stars like Apple and Time Warner, amidst a plethora of disappointing investments – yes Groupon and Tempur-Pedic, we’re looking at you. On the whole, the S&P is still up over 10 percent, having investors hoping that this whole LIBOR mess doesn’t rain on their parade; here’s our forecast of the situation. With worsening conditions in China and U.S. consumer confidence in steady decline, it’s very easy to rein in the bulls and sit on the sidelines until things shape up. At the moment, though, complete inaction may be a misplay, as there are a number of attractive investments at today’s prices.
To select one such stock, we’re going to use the help of the WealthLift Sentiment Index. Made up of the 6,000 publicly traded stocks, from advertising to waste management, the index tracks how the WealthLift community is viewing a particular stock. Ratings are placed on a scale of 0 to 100, with 100 being the most bullish score. Below is one stock with a sentiment above 95.0, and while this should not serve as a laundry list for your portfolio, it can be a starting point for further research.
IMAX Corp (NYSE: IMAX)
IMAX designs, constructs, and markets large screen digital theatre systems in both 2D and 3D formats. The typical IMAX film is an enhanced version of either a blockbuster (during the summer months), or a redux project (during the winter months). Regarding the former, the company has been heavily involved in the showings of record-setting films, à la The Avengers and Avatar to name a couple. While there are always going to be a few flops – Sucker Punch first and foremost – the majority of IMAX movies are high grossing, which obviously helps investors sleep at night.
Since the recession, the company has grown its revenues by an average rate of 32.1 percent a year, which is above peers like Regal Entertainment Group (NYSE: RGC) at -1.1%, Cinemark Holdings (NYSE: CNK) at 9.4%, and Carmike Cinemas (NASDAQ: CKEC) at 0.7%. Over this same time period, IMAX has pushed to fix its biggest weakness – lack of theatres. After having only 220 screens at the end of 2009, the company now expects to have 550 by year’s end, with nearly half of these additions being shared theaters.
Much in the same way that most business partners share profits, these joint ventures will allow IMAX to take in one-fifth of the box office sales received at each location. As expected, these developments will have a material effect on IMAX’s bottom line; the Street is predicting a year-end EPS of $0.66 a share, way up from the $0.28 it reported in 2011. With the company focused on expanding its reach in China over the next 12 months, EPS is expected to hit $0.90 by the end of 2013.
Now, the bears can scream that this stock is overvalued, but the numbers show that this simply isn’t the case. Currently, shares of IMAX are trading in the $24 range, and are priced at a Forward P/E of 21.1X, far below the stock’s own 5-year historical average (46.1X). When growth is factored into the equation, we can see that IMAX is trading at a PEG ratio of 0.6; typically, any figure below 1.0 signals undervaluation. Now, this PEG is also below the likes of RGC (1.3), CNK (1.1), CKEC (1.0). It appears that the markets have not fully taken notice of IMAX’s superior earnings prospects.
From a cash flow standpoint, the company has quadrupled its operating cash flows over the past 12 months, while improving its free cash flow position handily. Despite these gains, the stock trades at a P/CF ratio (64.1X) far below its 5-year historical average (94.9X). Computing the PCFG ratio gives us a ratio 0.3, signaling further undervaluation. The computation of the PCFG is similar to that of the PEG; here’s a refresher course on this kind of ratio analysis.
To recap the bull’s case: IMAX is expanding its revenues at superb rates, it has a fairly wide economic moat, earnings are expected to triple by the end of 2013, and it trades at cheap growth multiples. If the company does indeed hit the $0.90 EPS that is expected of it by Christmastime of next year, fairly valued shares should eclipse $40.
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Disclosure: The author has no holdings in the stocks mentioned in this article and has no plans to initiate any positions within the next 72 hours. He does, however, have the intention of rating these stocks on WealthLift.com, a social media website where investment ideas are shared openly and free.