This Stock Is the Best of Both Worlds for Investors

Here's why ACCO Brands is a great name to trade, and a fine one to hold.

Author:
Paul Price
Publish date:
Jan 14, 2022 7:00 AM EST

You can sometimes find a stock that looks terrific as a trading vehicle, yet also appears poised for substantial gains over time.

ACCO Brands (ACCO) appears to be exactly that type of holding. The company is behind such brands as Barrilito, Derwent, Leitz, and Mead.

The data below show ACCO's last five multi-month rallies and declines since October 2011. The five selloffs averaged losses of 49.1%. The five rebounds averaged a much better 142.7%. Clearly, buying ACCO after major drawdowns has been a proven way to generate excellent profits.

The current 17.1% decline, as of Wednesday was lower than the others. Why is that? ACCO just finished a fabulous year. If fourth-quarter results come in as expected, earnings per share will have grown from $0.70 in Covid-ravaged 2020 to about $1.30 - $1.35 in 2021. The real question is not why it's down 17%, but why it is not much, much higher. At $8.10 the shares sold for just 6.1-times trailing earnings.

ACCO's high beta (1.50) was earned by somewhat wild intra-year swings, which mainly came in the absence of company specific news. The one-year chart below shows how easy it was to catch very tradable short-term swings.

ACCO is in the midst of a very strong profit surge that figures to last years. Annualized growth rates appear set to grow substantially vs. the previous half-decade. That could easily lead to price-to-earnings expansion and a much higher share price.

The data below show ACCO's historical statistics from 2011 through the present. From 2016 through 2020 its typical valuation ran about 9.8-times earnings.

Applying that same multiple to Value Line's 2022 estimate for ACCO suggests $14.70 as a reasonable target price by this time next winter. Hitting that modest goal would deliver an 81.4% gain plus a 3.7% current yield while you wait.

Yahoo Finance takes a pretty conservative view on ACCO's prospect over the coming year. Even so, its $13.40 target price would provide greater than 69% in total return. That goal is far from an upper limit. It assumes a lower than historically average final P/E of just 8.5-times.

Independent research house Morningstar deigns to provide year-ahead targets. It does, however, share its view on what each stock is worth at the time it reviews it. As with Yahoo Finance, I see Morningstar's work as ultra-conservative. It values ACCO at just 7.3-times trailing earnings rather than its traditional 9.8-times multiple.

Value Line sees huge three-to-five year upside for investors with longer time horizons. It assumes faster growing fundamentals will push ACCO's P/E to about 14-times not later than 2026. That's not crazy to believe if ACCO continues to improve EPS at 12% annualized.

At present ACCO's longest dated options only extend to June 17. Starting soon there will be September expirations available to trade.

Put premiums on the June series are not especially generous. That is because almost nobody is willing to bet ACCO has much downside risk from its current quote. Even so, collecting 60-cents or $2.20 per share while committing to own ACCO at either $7.49 or $7.80 is not scary at all.