Take Advantage of Market Insanity With Matthews International

What could be crazier than a company posting robust, record numbers that is seeing its shares trading for less than they did eight years earlier? That was exactly the case for Matthews International last Thursday, April 11. Matthews finished the fiscal year that ended Sept. 30, 2018, with all-time best numbers in every category. Over the previous seven years earnings per share had grown by more than 62%. Dividends expanded by more than 140%. Traders noticed. MATW carved out a new peak of $77.90 in January 2017. That's when the insanity kicked in. Profits grew in 2017 and again last year, yet the stock sank as low as $35.50 this March. If you owned it during this period you'd have every right to be pissed off. If you're like most people, though, you never even knew Matthews existed. Perhaps it would be a good time to get acquainted with the diversified maker of memorialization and industrial automation products. Matthews earned a top 1% grade in terms of earnings predictability compared to all 1,700 companies in Value Line's main research universe. It has been more stable than 80% of those stocks as well. The firm's balance sheet is adequate. Low price growth persistence is meaningless if you didn't hold it previously. It simply means you're getting the chance now to buy in cheaply. How good is the stock's valuation? From 2011 through 2018 MATW sold for an average price-to-earnings (P/E ) multiple of 15.2x. It typically paid around a 1.11% dividend. As of April 11 it was available for just 9.6x this year's estimate accompanied by a 2.08% current yield. MATW didn't get nearly that inexpensive during the 2008-2009 crash. It bottomed in March 2009 at 12.3x forward earnings while paying 0.96%. Each of the stock's previous best entry points (green-starred below) offered traders the chance for substantial gains. MATW's four should have sold moments (red-starred) reflected above-average multiples. Three of the four also provided subpar yields. A simple regression-to-the-mean bounce could send Matthews back toward $61 in a hurry. Achieving that modest target over the coming 12 months would represent better than 60% in total return. That goal is not far-fetched. MATW peaked between $61 and $77 during each of the four years from 2015 through 2018 on lesser fundamentals than are expected in 2019. My $60.80 projected price is far from an upper limit. When MATW was in favor on Wall Street it broke 20x earnings on a couple occasions. Option writers can collect handsome premiums for selling some Sep. 20, 2019 put options at $35 or $40 strike prices. Worst-case, forced purchase prices dropped to either $33 or $35.90, respectively, with MATW at $38.48. Future stock market action can never be guaranteed. We know for sure, though, that owning MATW at $33 would have been a winning position 100% of the time dating back more than a half-decade. The breakeven on the more aggressive, in-the-money put would have been a good trade around 99% of the time during those same five years. We can't prevent market insanity from occurring, but we can profit from it. It is almost always a temporary condition. Buy some Matthews International shares, sell some puts or consider doing both. There is a high probability of seeing 60% gains within six to 18 months.

Take Advantage of Market Insanity With Matthews International

What could be crazier than a company posting robust, record numbers that is seeing its shares trading for less than they did eight years ago?

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