by Jim Fink, contributing editor Personal Finance
I've uncovered four hidden gems that should thrive in the current global economic and political climate, and generate outsized returns for investors for years to come.
These stocks have passed my six-point "safety rating" system that steers us away from stocks exhibiting risky characteristics that historically have led to problems down the road. Here's a look at PriceSmart (PSMT), Gentex (GNTX), Buckle (BKE) and United Therapeutics (UTHR).
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PriceSmart is the largest operator of membership warehouse clubs in Central America, South America and the Caribbean. It serves over 1 million cardholders at 30 warehouse clubs.
PriceSmart isn't just a Costco wannabe imitator; it was actually spun off from Costco (then called Price/Costco) in 1994. Former Price/Costco Chairman of the Board Robert Price has been PriceSmart's Chairman ever since.
The market cap is $2.2 billion, whereas Costco's is $44.1 billion. I'm not saying that PriceSmart will grow 20 times in value to equal Costco's market cap, but even a fraction of that catch-up growth will make current investors rich.
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Gentex has a virtual monopoly on automatic-dimming car mirrors. Right now, these high-tech mirrors are only installed in 23 percent of cars worldwide, but Michigan-based Gentex sees the global percentage increasing to 45 percent over the next decade, which would mean $3 billion in additional revenue.
Since the entire market cap is currently only $2.6 billion, the prospects for stock-price appreciation are tremendous.
The company is a true value stock, trading at only 16 times earnings when its historical five-year average multiple is closer to 26. The stock will most likely return to a 26 P/E multiple. With current earnings per share of $1.17, that would mean a stock price of 30 — more than 60 percent higher than the current level.
The Buckle is headquartered in Nebraska and operates 440 apparel stores in 43 states, focusing on jeans and tops for those aged 15-30 years.
Chairman Daniel Hirschfeld and CEO Dennis Nelson collectively own 40 percent of the stock. Therefore, management's financial incentives are aligned with the average shareholder.
The company pays an $0.80 regular annual dividend and has added a special dividend of at least $2.00 in each of the five years since October 2008, putting the stock's total dividend yield near 7 percent.
Buckle is extremely profitable with the highest operating margin in the apparel industry, returns on invested capital of almost 40 percent, and annual EPS growth of almost 15 percent over the past 10 years.
United Therapeutics focuses on the treatment of a relatively rare disease called pulmonary arterial hypertension (PAH). The 250,000 people worldwide who suffer from PAH have high blood pressure in the arteries of their lungs.
The global market for PAH treatment is roughly $4 billion in annual sales and UTHR currently has about a 15 percent overall market share. However, United Therapeutics is the market leader in treating severe PAH, with its Remodulin brand controlling 80 percent of the market.
Annual drug treatment costs for severe PAH can run upwards of $90,000 per year; United Therapeutics is a very profitable company despite serving a small patient base.
The firm has generated 25 percent compounded annual revenue growth — all organic — for ten consecutive years. It sells for only 10 times earnings, has almost $10 per share in cash, and last year earned a solid $3.67 per share.