Herbalife Ltd. (HLF), Gold Fields Limited (ADR) (GFI): One Investor’s Trash is Another Investor’s Treasure

Page 1 of 2

Have you ever been dumpster diving?  I have–it is a great past time.  One thing I’ve learned is that you never know what some people will throw away.  Sometimes there is a reason it is being thrown out, while other times you find something that proves the old adage: one man’s trash is another man’s treasure.

Herbalife Ltd. (NYSE:HLF)

This applies to the stock market as well.  Many an investor has found a treasure in an investment that other investors were throwing out.  So, let’s look for some of these treasures in this article.  But first, we’ll need to take a trip to the dump.

The Dump

These stocks have been thrown out by investors judging by their 52-week price change.

Herbalife Ltd. (NYSE:HLF) -50%

Gold Fields Limited (ADR) (NYSE:GFI) -41%

Questcor Pharmaceuticals Inc (NASDAQ:QCOR) -34%
Caterpillar Inc. (NYSE:CAT) -23%
Jabil Circuit, Inc. (NYSE:JBL) -22%
Now, everyone has their reasons for dumping a stock.  There is always a bear argument to be made.  But you may be thinking, look at the five stocks we’ve picked.  Gold?  Construction??  Healthcare??!
Perhaps you’ve heard a thing or two about each of these five companies, but let’s take a look at the numbers and see if there is anything valuable here in this dumpster.

Hmmm, what do we got here?

To find the five companies I wound up with for this article, I used a stock screener.  I was looking for stocks with a market cap of at least $1 billion that had low valuation, high growth, and that are currently beaten down.
Company Market Cap *EPS Growth P/E Ratio Forward P/E PEG
Herbalife $3.59 Billion 37% 8.6 6.47 0.53
Gold Fields Ltd $4.68 Billion 70% 7.3 5.73 n/a
Questcor Pharmaceuticals $1.6 Billion 101% 8.84 5.38 0.24
Caterpillar $52.94 Billion 81% 9.53 8.74 0.78
Jabil Circuit $3.45 Billion 73% 9.42 6.45 0.66

*Last three years

As you can see, these stocks have had double digit growth, have P/E ratios under 10, and price to earnings growth ratios under 1.  To add even more perspective to this, how do the numbers stack up against their respective industries?

Company P/E Ratio Industry Average
Herbalife 8.6 17.4
Gold Fields Ltd 7.3 35.3
Questcor Pharmaceuticals 8.84 86.3
Caterpillar 9.53 10.8
Jabil Circuit 9.42 16.7

All five of these companies beat the industry averages as far as the price to earnings ratio is concerned.  Considering these metrics, all five of these companies look cheap.  But are they truly treasures?

Which Are Truly Dumpster Treasures?


Herbalife Ltd. (NYSE:HLF) has had a very rough year, as its down 50%.  If you think it is due to their many competitors, think again.  Herbalife Ltd. (NYSE:HLF) has done just fine in staying competitive.  What happened was David Einhorn asked 3 questions. People thought that this was Einhorn’s short flavor of the month, and quickly sold.  This led to the first big drop.  Since then downgrades, accusations of being a pyramid scheme, and issues with their auditors have all played a role in hammering the stock down.

In the end Einhorn did short Herbalife, but that is now behind us.  Now that Einhorn is done, Carl Icahn is in.  Looking ahead to the next quarter, the company is expecting growth between 12%-14%.  It offers a dividend of 3.5%.  Given the continued growth, and the current low valuations, there seems to be little room left to fall from here.

Gold Field

When it comes to Gold Fields Limited (ADR) (NYSE:GFI), you are probably worried about the recent gold sell-off. There are some concerns when you look at this company.  Revenue for was up for 2012, but higher operating costs, and a costly strike at one of their mines, ate into profits.  It wasn’t the best of years for the company, and with the shaky gold market it’s not a sure winner.

Page 1 of 2