In life, almost nothing is ever all good or all bad. That same principle definitely applies to the stock market. The recent stock market plunge was harrowing and portfolio-deflating, but it created some of the best bargains I've seen in a long time.
Real Money Pro subscribers saw my Fabulous Fifteen list last weekend detailing some of my best picks from after the fall.
My Oct. 15 column covered U.S. Concrete (USCR) .
I invite you to print out this page and look back at these stocks three, six and 12 months from today. I'm betting real money in my own accounts that the portfolio will be stellar given a reasonable time horizon.
A stock that came down 40% and merely reverts to that starting point will net you 66.67% plus dividends if you bought, or averaged down, after the selloff.
Interface Inc. (TILE) is a fine company that fetched $26.25 just months ago. The maker of carpet tile is on track for record earnings per share of $1.47 this year, up more than 24% from 2017's EPS of $1.18. As of Monday, Oct. 15, Interface was offered for just $19.55, or 13.3x this year's earnings estimate, while yielding 1.33%.
Since 2010, TILE typically traded for about 21.9x current earnings accompanied by a 0.78% dividend. Today's valuation represents the best buying opportunity on TILE since the early part of 2010. Value-oriented traders who snapped up Interface back then saw it surge from $7.10 to $20.50 in less than 18 months.
Buyers like me who picked up TILE at a 13.3x multiple in February 2016 were able to ride it from $13.70 to $25.70 over the next 19 months.
The current situation may end up being even better. Analysts see TILE ramping up its growth rate over the coming three to five years. Consensus views for 2019 now center on EPS of $1.79. Even a below-average price-to-earnings (P/E) multiple of 20x could support a 15-month target price north of $35.
Upside would be greater than 80% plus any dividends collected along the way.
Longer-term holders might do much better. Value Line thinks TILE can be earning $2.75 per share no later than 2023. Its three- to five-year target price range was $40 to $60 when Value Line published it in mid-September, with the stock at $23.65.
The already-impressive upside is substantially better now, with TILE offered for south of $20.
Upside like this dictates actually owning some shares if you want to fully participate.
As always, though, option sellers can nibble at the edges to benefit from a rising price without needing to lay out any upfront cash.
Interface does not offer long-term options, but it does have April 18, 2019, expiration date puts available to sell. With TILE at $20.02, put writers could collect $1.65 per share on the $20 strike, $3.20 on the $22.50 or $5.20 by committing at the $25 strike.
Worst-case, forced purchase prices dropped to $18.15, $19.30 and $19.80, respectively. Maximum profits weighed in at $165, $320 and $520 per 100-share contract sold.
I was a large buyer of Interface shares when it sank to under $20. Barring unexpected news I expect to be a long-term holder looking for $35 to $50 per share not later than the end of 2020.
Interface appears primed for a multiyear run higher on growing profits combined with P/E expansion.
Buy the stock, write some puts or consider doing both.
This commentary originally appeared on Real Money Pro on Oct. 17. Click here to learn about this dynamic market information service for active traders and get Paul Price's column each trading day.
