Beating the Drum Again for 2 Stellar Performers at Bargain Valuations

Investors dream of getting superior growth companies with good momentum at cheap valuations. Amazingly, those kinds of stocks are out there but few people appear to deem them worthy of consideration. I wrote about both Berry Global and Griffon Corp. not long ago. I mention them again because I just came across this research blurb from Rhizome Partners that mentioned them, too. Rhizome made some excellent points. Institutional managers apparently were not interested in either name due to somewhat high financial leverage. If that were truly a problem, though, Berry would not have been able to raise about $750 million in 2026 maturity date bonds recently at a coupon rate of just 1.57%. Proceeds were used to retire older, higher- yielding paper, providing an immediate profit boost due to lower net interest expense. Griffon made a similar capital-raising move last summer via a secondary offering rather than debt. Unlike Berry Global, though, GFF used the money to buy an Australian company that became immediately accretive to earnings. Both stocks were grossly undervalued as their shares were reflecting only small fractions of the value already created over time. I was a big buyer of GFF last year during the panic at about $10 per share. It was so cheap then that it still looked good nearing $20 last summer. GFF touched $28.47 in early trading on March 16 before settling back a bit to close at $27.64. I began buying BERY in the $53 range a few months ago and was lucky enough to see it dip back to as low as $49.19 intraday on Jan. 27. Earnings in Berry's fiscal first quarter, which ended Dec. 31, more than doubled. It is now a major position for me. Traders who bought both GFF and BERY exactly one year ago on the day the Dow Jones Industrial Average (DJIA) dropped by 2,700 points have been well-rewarded. Berry is up nearly 120% and Griffon about 134%, trouncing the broad market's gain. My recent year-ahead goal price for GFF sat at $35 based on a rebound to a more typical multiple. Three months of strong gains have tarnished the impressive upside I saw for it on Dec. 3, 2020. Hitting my target from here now suggests further upside potential of 26.6% plus some minor dividends. BERY now looks to be more seriously underpriced than GFF. The quarterly report was much better than expected and has caused me to raise my end-of-September 2021 target to north of $98. Analysts barely tweaked their fiscal 2021 and 2022 estimates higher after the latest report, as if they didn't believe their own eyes. Management is doing everything right and fundamentals have accelerated over four straight quarters, right through the Covid crisis. I would not be surprised to see calendar-year earnings per share approaching $6 by next December rather than nine months later. Price-to-earnings (P/E) multiple expansion accompanied by further earnings growth could send BERY to the $100 to $120 range in 12 to 18 months. As always, traders who'd like to play but want a better entry price can consider selling naked puts on a stock they'd be willing to own cheaper. Here were the actual March 16 closing prices on GFF and its $25 and $30 strike price Oct. 15, 2021 puts. Worst-case, forced prices would be either $22.55 or $25.60 depending on the strike price selected. Put writers either will own at those fine price points or pocket from $245 to $440 per 100-share commitment. Under-followed companies such as Berry and Griffon offer excellent risk/reward propositions. Large percentage upturns are likely to unfold as more and more traders get wise.

Beating the Drum Again for 2 Stellar Performers at Bargain Valuations

Berry Global and Griffon Corp. are two underappreciated companies that still look cheap based on their growth prospects.

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