10 Boring Quality Stocks at Fair Prices

“Good investing is boring,” legendary investor George Soros once said.?

There are a few reasons why boring names can be excellent long-term holdings in a stock portfolio. These companies are often in industries with no or low growth, making it unattractive for new competitors to enter and giving pricing power to the established players.

Furthermore, because of the boring nature of the business, these stocks can be trading at very reasonable multiples. This is because “boring” keeps Wall Street analysts and most stock pickers away, especially for smaller companies.?

As the business performs well over long periods, the valuation multiples increase as it attracts more investors. That gives the stock a “twin engine” of earnings growth and multiple expansion - the recipe for fantastic long-term compounders.

Using the Stock Unlock screener function, we look for companies across “boring” industries like distribution and industrials with the following numbers:

Revenue Growth (5Y) > 6%

Free Cash Flow Growth (5Y) > 8%

ROIC > 15%

LTM P/E < 22x

Let’s dive in:?

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1. Advanced Drainage Systems (WMS)

Revenue Growth (5Y): 14.2%

Free Cash Flow Growth (5Y): 12.9%

ROIC: 24.9%

LTM P/E: 18.2

The un-inspiring name and the fact that this company is headquartered in Ohio puts Advanced Drainage Systems on top of the list. Not only is it boring, it also extremely profitable with >30% EBITDA margins and a highly durable business model that is set to benefit from increased infrastructure spend in the coming decades.

Advanced Drainage Systems also has a twofold approach to growth. Organic growth coupled with opportunistic acquisitions have led to impressive revenue growth, and the list of acquisition targets should only grow with scale.? Furthermore, the company has bought back a decent amount of shares (but has also previously issued shares as part of M&A) while tending to a small dividend.

2. Murphy USA (MUSA)

Revenue Growth (5Y): 7.9%

Free Cash Flow Growth (5Y): 14.9%

ROIC: 23.1%

LTM P/E: 19.8

With the stock up more than 350% over the past five years, Murphy is no longer an unknown share cannibal. While the business has performed fantastically since spinning off from Murphy Oil in 2013, the earnings multiple has increased from 12-13x to ~20x.?

However, despite more investors opening their eyes to the business, the tailwinds from the consolidating convenience store market in the United States will continue to play to their advantage. As one of the largest operators, Murphy will increasingly take market share from smaller players as volatile fuel prices and labor costs run single-store operators out of business.?

Murphy USA has also bought back more than 55% of shares outstanding over the past decade.?

3. Eagle Materials (EXP)

Revenue Growth (5Y): 11.9%

Free Cash Flow Growth (5Y): 15.5%

ROIC: 20.2%

LTM P/E: 17.2

Eagle Materials mainly produces cement and wallboard for use in construction - the company itself acknowledges that it is boring with the slogan “We produce necessities not luxuries.”

In terms of margins and return on capital, Eagle Materials is miles ahead of its competitors. Over the past decade, Eagle has earned EBITDA margins north of 30% and managed ~14% returns on capital (20% last fiscal year). Those are impressive numbers in a cyclical and capital-intensive industry. Total returns from the stock have been 13% annually over the past decade.?

4. Booz Allen Hamilton (BAH)

Revenue Growth (5Y): 10.0%

Free Cash Flow Growth (5Y): 19.6%

ROIC: 24.8%

LTM P/E: 20.5

Booz Allen IPO’d in 2010, but the company’s founding dates back more than 100 years. As a consulting company, Booz Allen has close ties to the government and, among other missions, helped the U.S. Navy prepare for World War II back in the days.?

After the IPO, the company launched a new strategy to transform itself from a pure consulting business to a solutions provider, which allows Booz Allen to serve a broader client base and operate in a larger addressable market. Over the past decade, that has led to strong revenue growth, margin expansion, and a fantastic ~19% CAGR total stock price return.?

5. Installed Building Products (IBP)

Revenue Growth (5Y): 14.8%

Free Cash Flow Growth (5Y): 25.2%

ROIC: 24.8%

LTM P/E: 19.4

A terribly boring name and a business model that excites vew few of us can lead to extremely good returns; Installed Building Products stock has returned ~26% CAGR over the past decade. That beats most of the Magnificent 7 stocks.

The brilliant returns are a result of accretive acquisitions, a diversified product mix and end market and execution from the CEO who has been with the company for more than 20 years.?

6. Mueller Industries (MLI)

Revenue Growth (5Y): 7.9%

Free Cash Flow Growth (5Y): 35.3%

ROIC: 30.6%

LTM P/E: 15.7

Mueller operates across multiple industries including HVAC and industrial manufacturing, and has leading positions in products (such as insulated flexible duct systems) and end markets.

Despite 85% of sales to building construction projects, Mueller has managed to stay profitable across the economic cycle, including recessions in 2001 and 2009. Over the past 8 years, Mueller has averaged 22% returns on capital while diversifying and expanding through acquistions, investing in organic growth, and repurchasing shares.?

7. Boise Cascade Co (BCC)

Revenue Growth (5Y): 8.1%

Free Cash Flow Growth (5Y): 11.0%

ROIC: 21.1%

LTM P/E: 11.2

Headquartered in Idaho, Boise Cascade manufacturers wood products and plywood and distributes it to small and large customers in housing related industries. Since the IPO in 2013, the company has sold non-core assets to specialize in wood products and related building products. That has led to greater earnings stability and the opportunity to sell value-added products at a higher margin.

With the undersupply of housing in the United States and a strong brand in both manufacturing and distribution, the key growth drivers will continue to be a tailwind to the business?

8. Valmont Industries (VMI)

Revenue Growth (5Y): 7.8%

Free Cash Flow Growth (5Y): 12.7%

ROIC: 16.4%

LTM P/E: 20.2

Another company headquartered in the Midwest with business segments in infrastructure and agriculture. Valmont is more exposed to commodity (steel) prices and the economic cycle, but targets high-teens returns on capital and >100% net income to free cash flow conversion. That is a sign of quality earnings and advantageous working capital to the benefit of shareholders.?

9. Atkore (ATKR)

Revenue Growth (5Y): 15.9%

Free Cash Flow Growth (5Y): 17.9%

ROIC: 33.4%

LTM P/E: 4.8

Atkore is regularly discussed in investing communities. Rarely can investors find a company with returns on capital north of 30% trading at such a cheap multiple, but drawdowns seems to a regular feature in Atkore stock. Since the IPO in 2016, the stock has been in multiple drawdowns of more than 40%, including the current ~57% drawdown. Over the same time frame, the stock has appreciated by 21%, so the volatility seems to be the price of admission in Atkore stock.??

The business is also volatile as the selling price for electricity fluctuates, but the megatrends such as increased demand for electricity in data centers and renewable energy remain big tailwinds to the business.?

10. Pilgrims Pride Corp (PPC)

Revenue Growth (5Y): 10.4%

Free Cash Flow Growth (5Y): 45.8%

ROIC: 21.1

LTM P/E: 11.5

Pilgrim’s Pride produces and distributes chicken and pork products to customers all around the world. The business model is un-sexy but remarkably stable (in terms of revenue, profitability fluctuates more with commodity prices) and difficult to compete with at scale as the demand for cheap protein will continue to rise.

Conclusion

Many of these boring businesses have outperformed the major indices over a long time frame, with the best example being Murphy USA stock (an incredible 25% CAGR over 11 years.) Investing does not have to be overly complicated, nor do investors need to chase the latest hype to get satisfactory returns.?

In many cases, boring businesses are more predictable, have less competition, and trade at cheaper valuation multiples compared to typical tech companies. That makes many of these companies featured in this list worthy of further research. Slow and steady wins the race!

Author

This Newsletter's Author

This newsletter was written by J?rgen Pettersen. You can find him on?Twitter/X.

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