Value Watch: 3 Undervalued Professional Services Stocks
These three stocks could set your portfolio up for a great finish to 2020.
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Steven Lerner
Oct 01,2020,17:16

This year may go down as the year of the big tech stocks, but value investors are always looking for the next breakout companies that are trading for less than their intrinsic value.

Among the 11 S&P 500 sectors, Industrials are poised to finish the year on a higher note. Within that sector, several companies under the Professionals Services category are perfect for bargain stock hunters.

These three stocks could set your portfolio up for a great finish to 2020.

China Index Holdings (Nasdaq: CIH)

China Index Holdings (Nasdaq: CIH), operating since 2007, fits the profile as the ideal under-the-radar value investment.

The Beijing-based subsidiary of Fang Holdings Ltd. (NYSE: SFUN) operates one of the top online analytics and real estate trading platforms in China. In fact, the business is a spinoff of popular Chinese housing portal Fang.com.

Since the pandemic, the real estate market in China has boomed. A massive uptick in mortgages, mostly through the encouragement of the Chinese government, has propelled the sector in recent months. In fact, the market has been so hot, that China has reduced access to mortgages to prevent citizens from being saddled with much debt.

Buying into the Chinese real estate market can be tricky, especially if the bubble collapses. However, as a SaaS company, China Index Holdings is essentially a periphery business in the country’s real estate space. Thus, investors get exposure to real estate with a little bit of separation in case the market implodes.

In May, the company entered the global credit rating market with its acquisition of China Index Credit Rating. That will provide a new source of revenue for the business.

The financial statement for China Index Holdings is extremely positive. In the second quarter, revenue increased by 12% year-over-year and net income soared by 21%. The company boasts a net profit market of 41%. Its price-to-earnings ratio currently stands at 3.9.

The company began trading on the Nasdaq in 2019. The stock price has been down 61% in 2020, including a 22% drop in just the past month. It could be a good time to buy low inthis value stock.

TriNet Group (NYSE: TNET)

As small and medium-sized businesses aim to cut costs due to the pandemic, human resources is increasingly seen as an area to be outsourced. That’s one of the ways that TriNet Group, a provider of HR technology solutions, can benefit.

The California-based company, which was founded in 1988, offers services including payroll processing, tax administration and Fortune-500 benefits just for mom-and-pop businesses. It also provides an HR technology platform for business managers.

TriNet represents a promising opportunity for value investors. The company has a price-to-earnings ratio of 13.42, a net profit margin of 13.29%, and a return on equity of 60.64%.

Its stock price is up 52% in the past six months, but it ticked down 15% in this past month. Think of this stock price correction as a way to buy into the company at a slight discount.

Looking at TriNet’s financials, there’s a lot to like. While total revenue only jumped 1% year-over-year in the second quarter, net services revenue increased 45% during that same time period. Net income per diluted share grew from $0.64 last year to $1.87 in 2020.

The company also recently acquired Little Bird HR, a provider of benefits of human resources solutions in the education sector. With the acquisition, TriNet has expanded its reach into a new niche market.

When you add it all up, TriNet is absolutely a buy.

Barrett Business Services (Nasdaq: BBSI)

Value investors love to bet on legacy companies that are undervalued. A good buy-low bet is Barrett Business Services, which was founded in 1965 and went public in 1993.

The Washington-based company offers management solutions through its integrated human resources platform for more than 7,200 clients.

Barrett’s stock has been down 44% in 2020 due to the pandemic. Revenue decreased massively in the second quarter, although the company did beat on earnings estimates.

After the pandemic-driven setback, the stock price increased by 33% in just the past six months, which means investors can buy low and still benefit from a potential upswing.

The company also slashed $116 million in outstanding claims liabilities through a loss portfolio transfer agreement in July, resulting in a 27% reduction in workers’ compensation liabilities.

Why does this expense curtailment matter? Because Barrett increased its unrestricted cash and investments by 28% year-over-year, and it remains nearly debt-free. That means once the pandemic ends, Barrett has the dry powder to expand its business.

In fact, that business expansion has already started. This week, the company announced that it is growing its services into the Glendale, Arizona market.

The financials also look appetizing for value investors. The price-to-earnings ratio is 9.09, the price-to-book ratio is 2.24, and the return on equity is 28.22%. Plus, shareholders get a 2.25% annual dividend yield. This is an excellent value stock.

Disclaimer

The opinions expressed in this article do not reflect the position of CapitalWatch or its journalists. The analyst has no business relationship with any company whose stock is mentioned in this article. Information provided is for educational purposes only and does not constitute financial, legal, or investment advice.

Topics :china index holdings, barrett business services, trinet group, value
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