Bob Rodriguez's Top 3 Undervalued Predictable Stocks

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Guru Robert Rodriguez , who heads First Pacific Advisors ' FPA Capital Fund manages about $830 million through his 25-stock portfolio.

The manager of the closed-end fund targets companies exhibiting: market leadership and long-term histories of profitability; financially strong balance sheets; first-rate management teams that have an understandable and successful business strategy; deep value price based on normal free cash flows, earnings and balance sheet values.

After updating his portfolio for the fourth quarter, his top holdings remain: Western Digital Corp. ( WDC ), Rowan Companies PLC ( RDC ), Arrow Electronics Inc. ( ARW ) and ENSCO Plc ( ESV ).

There are currently five companies that turn up as undervalued, based on the calculation from our Discounted Cash Flow model . Three of the stocks have a Business Predictability rating of four stars or higher. Below are their descriptions.

Western Digital Corp. ( WDC )

California-based Western Digital Corp. is a global provider of products and services that cater to preserving digital content. Some of its products include storage devices, networking equipment and home entertainment products under several brands.

Currently, Western Digital is Rodriguez's top holding, representing 10.3 percent of his portfolio, with over 2 million shares.

Earlier this week, Western Digital announced a $3.8 billion revenue for its second quarter ending Dec. 31, compared to the $2 billion revenue in the previous year. The company generated $772 million in cash from operations for the quarter, ending with total cash and cash equivalents of $3.8 billion, $146 million of which was utilized to buy back 4.2 million shares of common stock.

With a dividend yield of 1.1 percent, Western Digital has a P/E ratio of 6.2, a P/S ratio of 0.8 and a P/B ratio of 1.4. It currently trades at $48.05, up 2.08 percent after market close. It has a 4.5-star ranking in Business Predictability.

Based on the GuruFocus DCF Calculator, Western's fair value is $220.63, with a growth rate of 20 percent in the next 10 years. Its margin of safety remains in the positive 78 percent.

To view more details, visit Western Digital's 10-Year Financials.

Alliant Techsystems Inc. ( ATK )

Alliant Techsystems is a large producer of solid rocket propulsion systems and supplier of military and commercial aircraft structures. Through its Aerospace systems, it develops and produces rocket motor systems, conventional and strategic missiles, and small and micro satellites.

Currently a small holding in ATK, the stock is one of Rodriguez's newer positions, purchased in the third quarter of 2012. He owns 52,400 shares.

In FPA Capital's third quarter letter, the fund mentioned:

"We purchased our initial position in ATK below $45, or less than 6x trailing-twelve-months earnings and 55% of revenues to enterprise value. We believe the risk:reward ratio is very attractive at our entry point. At time of writing this commentary, ATK had rallied above $55 or roughly 30% higher than our cost basis."

FPA Capital makes a solid case. It was only in July that the company traded around $44. Today, ATK's stock is at $67.13.

Using the GuruFocus DCF Calculator, ATK's fair value is $123.12, with an 11.5 percent growth rate in the next 10 years.

ATK has a dividend yield of 1.3 percent, and a payout ratio of 0.1. Its P/E ratio is 8.9, its P/B ratio is 1.6 and its P/S ratio is 0.5. GuruFocus gives the stock a 4-star rank in Business Predictability.

To view more details, visit ATK's 10-Year Financials.

Atwood Oceanics ( ATW )

Atwood Ocreanics engages in the drilling and exploration of oil and gas worldwide. The company owns 10 mobile drilling units, and plans to expand its fleet with the construction of six high-specification rigs.

Rodriguez reduced heavily in Atwood in 2012, due to the stock appreciating throughout the year. In 2012, the stock gained at least 15 percent.

In FPA Capital's third quarter commentary, they noted that this surge reflects the "prospects of [Atwood]'s stronger profitability due to robust oil prices."

While it trades significantly lower in the second quarter of 2012 around $35, Atwood has spiked to $52.85 in current trading price, up 1.69 percent after market close. The stock represents 1.5 percent in FPA Capital's portfolio weighting.

According GuruFocus DCF Calculator, Atwood's fair value is $61.51, and has a growth rate of 10 percent in the next 10 years.

Ranked 4 stars in Business Predictability, Atwood has a P/E ratio of 12.8, a P/B ratio of 1.8 and a P/S ratio of 4.3.

To view more details, visit Atwood Oceanic's 10-Year Financials.

To see more of his buys and sells, see Robert Rodriguez's portfolio here. Also check his Top Growth Companies and High Yield stocks.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing

Referenced Stocks: ARW , ATK , ESV , RDC , WDC

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