This stock is firing on all cylinders, says John Reese of Validea Hot List...and before we're tempted to write any more bad puns, just know that this value play is worth a long look.
Lear (LEA) is a tier 1 supplier to the global automotive industry. The company supplies its products to automotive manufacturers with automotive seat systems and related components, as well as electrical distribution systems and related components.
Lear has two segments: seating and electrical power management systems (EPMS). The seating segment includes seat systems and related components, such as seat frames, recliner mechanisms, seat tracks, seat trim covers, headrests, and seat foam. The EPMS segment includes electrical distribution systems for traditional powertrain vehicles, as well as for hybrid and electric vehicles.
As of December 31, 2011, it had 20 joint ventures located throughout Asia, as well as five in North America, two in Europe and Africa, and one with operations in all three regions.
This stock is evaluated utilizing a Growth/Value Investor Strategy, based on Guru James P. O'Shaughnessy's stock analysis theory:
The first requirement of the Cornerstone Growth Strategy is that the company has a market capitalization of at least $150 million. This will screen out the companies that are too illiquid for most investors, but still include a small growth company. LEA, with a market cap of $5.5 billion, passes this criterion.
The methodology also looks for companies that show persistent earnings growth without regard to magnitude. To fulfill this requirement, a company's earnings must increase each year for a five-year period. LEA, whose annual EPS before extraordinary items for the last five years (from earliest to the most recent fiscal year) were -4.47, -2.66, 4.05, 5.08, and 12.85, passes this test.
The price-to-sales ratio should also be below 1.5. This value criterion, coupled with the growth criterion, identifies growth stocks that are still cheap to buy. LEA's P/S ratio of 0.37, based on trailing 12-month sales, passes this criterion.
The final part of the Cornerstone Growth Strategy requires that the relative strength of the company be among the top 50 of the stocks screened using the previous criterion. This gives you the opportunity to buy the growth stocks you are searching for just as the market is embracing them.
LEA, whose relative strength is 81, is in the top 50 and would pass this last criterion.
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