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April 28, 2024 (Maple Hill Syndicate) One of my favorite tools for picking stocks is a paradigm I call Old Faithful, named after the geyser in Yellowstone Park. This paradigm fizzled last year, but has an outstanding long-term record.
To appear on the Old Faithful list, a stock must:
Post good profits (15% return on equity).
Have debt under control (debt less than stockholders' equity).
Be cheap (no more than 15 times earnings and two times book value).
Show decent earnings growth (averaging at least 10% a year for the past five years).
Drawn from the Old Faithful screen, here are four stocks I feel optimistic about for the coming 12 months.
Halliburton
Halliburton Co. (NYSE:HAL), with headquarters in Houston, Texas, is one of the Big Three oilfield service companies. The other two are Schlumberger Ltd. (NYSE:SLB) and Baker Hughes Co. (NASDAQ:BKR).
I consider a 15% return on stockholders' equity good and 20% excellent. Halliburton notched 20.6% in the past four quarters. Its stock is below $21 as of April 25, and the consensus of Wall Street analysts is that it will rise to $30 in the next 12 months.
Of 29 analysts who cover the stock, 22 recommend it. The stock sells for about 9 times earnings, whereas over the past decade, it's usually fetched a multiple of about 17.
Cincinnati Financial
Based not in Cincinnati but in Fairfield, Ohio, Cincinnati Financial Corp. (NASDAQ:CINF) sells home, auto and life insurance. It does business in all 50 states and has relatively little exposure in Florida, where hurricanes often cause severe losses.
Earnings growth has averaged 13% the past five years. It was faster last year, but I don't put much emphasis on that since insurers had recently won big price increases from regulators. That's not a regular occurrence.
The company has very little debt only 6% of equity.
Oshkosh
Fire engines, garbage trucks, military trucks and aerial work platforms are the main products at Oshkosh Corp. (NYSE:OSK), based in Oshkosh, Wisconsin. The stock hasn't gone much of anywhere in three years.
It sells for less than nine times earnings, compared with a typical multiple over the past decade of 15. That measure and other valuation measures are at five-year or ten-year lows.
Analysts are split, with eight recommending the stock and eight demurring. Recession is a risk. In the pandemic recession of 2020, profits fell almost 50%, but the company stayed profitable. In the Great Recession of 2008-2009, it posted a big loss.
I may be prejudiced, since I made a lot of money in this stock many years ago, but Oshkosh looks appealing to me. Investors might want to take a toehold now, and add to it if the shares, now at about $89, fall below $80.