CF Industries Holdings, Inc. (CF), Inter Parfums, Inc. (IPAR): 5 Under-The-Radar Stocks Benjamin Graham Would Want To Own

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In doing a GARP screen the other day, I was surprised by the top five picks it turned up. But before I reveal their names, you might be wondering, “What the heck is GARP?”

If you’ve never heard of GARP, it has nothing to do with the John Irving novel “The World According to Garp.” GARP’s roots go back to a 1949 book, “The Intelligent Investor,” by Benjamin Graham, which has the distinction of being called “the best book on investing ever written” by Warren Buffett.

Known as the father of security analysis and value investing, Graham believed investors should consider both future growth (measured through fundamentals) and present price of a stock to identify value.

I set my GARP screen to evaluate companies based on dividend growth rate, trailing price-to-earnings (P/E) and price-to-book (P/B) ratios, earnings per share (EPS) growth, revenue and current ratio. I scored each of the six indicators against the benchmarks using a simple 1-100 scale. For example, if the P/E for a company was 10 and that was better than 90% of all other stocks, that company got a score of 90. I added up the scores and divided by six for the overall score.

What an interesting group I ended up with: The top five picks are relative unknowns and range from fertilizers to fragrances, with poultry, starch and trucking in between.

CF Industries

The top overall score went to CF Industries Holdings, Inc. (NYSE:CF), an Illinois-based manufacturer and distributor of fertilizer products. With a $10.8 billion market cap, it is the second-largest publicly traded nitrogen fertilizer producer in the world and the third-largest producer of phosphate fertilizer.

The company considers itself undervalued and has embarked on a $3 billion stock buyback program. Given the repurchases this year alone are nearly $1.1 billion, CF Industries Holdings, Inc. (NYSE:CF) may be done sooner than its 2016 target date. (Coincidentally, activist investor and hedge fund manager Daniel Loeb took a significant stake in the company in the second quarter.)

CF Industries Holdings, Inc. (NYSE:CF) is also investing in expansion: It’s one of the first companies bringing on new fertilizer capacity in North America. Its annual dividend yield is 0.9%, but it’s trading at a significant discount to its historical average, with a current P/E ratio of 6.5 compared with a five-year average of 11.1.

Inter Parfums

Inter Parfums, Inc. (NASDAQ:IPARis a U.S.-based maker and marketer of fragrances. The company avoids celebrity licensing deals and concentrates on prestige brands like Lanvin, Montblanc, Karl Lagerfeld, Jimmy Choo and Boucheron.

In the past six months, Inter Parfums, Inc. (NASDAQ:IPAR) has launched four new products, taken over marketing of the Alfred Dunhill brand, and sold back perfume licensing rights to Burberry, which added a chunk of cash to its already excellent balance sheet. Although Inter Parfums, Inc. (NASDAQ:IPAR) has raised its sales and earnings forecasts several times this year, it generated EPS of $1.15 in the first half of this year, exceeding its own expectations by a penny a share. The company pays a dividend yield of 1.7% and has a P/E ratio of 5.8.

Industrias Bachoco

Industrias Bachoco, S.A.B. de C.V. (ADR) (NYSE:IBA), a Mexican-based poultry producer, is one of the largest chicken companies in the world and has a market cap of $2 billion. In 2011, it bought U.S.-based O.K. Industries, another chicken producer. The company is sitting on a sizable amount of cash — nearly $10 a share — so it’s possible Industrias Bachoco is considering another acquisition.

The company’s second-quarter chicken sales volume decreased 1.1% as a consequence of an outbreak of avian flu. The company also sustained a one-time additional charge in relation to the outbreak. The supply for all the companies other main products were unaffected. The company has an extensive hedging portfolio with derivative positions for corn, soybean meal and interest rates.

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