Even though the S&P 500 is around the 2000 level, there are some good values out there. Perhaps not as good as they would have been with the S&P at 700, but one can't dwell on the past.
Instead, take a look at World Fuel Services (INT), an international logistics company that sells fuel into the marine and aviation markets. It is a boring yet strategic business and World Fuel is the known entity in the field. The business trades at 15x earnings but generates a healthy amount of cash flow each year. For years, the volume of marine cargo transportation has been in decline but that appears to be climbing as shipbuilding is picking back up.
Armstrong World Industries (AWI) is one of the leading floor producers in the nation. In this case, the catalyst for the company is a significant investment made by ValueAct Capital, which is one of the most respected investment funds in the industry. ValueAct is known for its constructive work with company management and its track record is nothing short of superb. New construction -- both residential and commercial -- is coming back, and businesses such as Armstrong typically benefit on the tail end of this cycle.
Veritiv (VRTV) is a recent byproduct of a spun-out company that was combined with another stand-alone company to create a distribution logistics provider. Seth Klarman's Baupost Group took a big position in this name. The shares trade for $46, which puts the company's value at $730 million. The market hasn't been able to assess this business yet in its combined form. I believe this will be an example where one plus one is going to equal more than two.
The cost structure savings from the two companies that will manifest over the coming year or two combined with the strength of its operations could have Veritiv generating close to $200 million in adjusted earnings before interest, taxes, depreciations and amortization (EBITDA) and revenues of $10 billion. As it now stands, each entity was generating approximately $75 million in adjusted EBITDA. With a current market cap of $730 million, Veritiv could turn out to be ridiculously cheap. Even with an approximate enterprise value (EV) of $1.5 billion, the valuation looks very good.
It is a tired but true cliché that today is a stock picker's market. But isn't it always?