These 5 Value Stocks Could See Continued Gains

One of the key metrics that Warren Buffett likes to look at when evaluating a business is its return on equity. The metric measures the amount of net income a company generates as a percentage of shareholder's equity and is useful for long-term investors who take the Buffett approach of evaluating their stock purchases as if they were buying the entire business. While a very high return on equity is usually a sign of a strong company with a significant competitive advantage, it cannot be evaluated irrespective of price. For this reason, investors should attempt to find strong businesses which have a high return on equity but are trading at relatively inexpensive valuations. Normally, at any given time, the number of companies that fit this criteria is quite small. In fact, a scan of the entire mid-cap universe of stocks turned up just 45 companies which have an ROE above 30% and are trading at a forward P/E ratio of less than 15. In order to further narrow down the prospective investments which fit this criteria, I added an additional requirement that the stocks be up at least 30% over the last year. While this metric may not be of interest to some investors, I think it is useful for identifying the higher quality businesses which are experiencing strong operational momentum in the current environment and weeding out weaker performers. A total of 11 mid-cap stocks fit these requirements - a ROE above 30%, a forward P/E of below 15, and 52-week returns above 30%. Below, Benzinga examines 5 of these names. H&R Block HRB - This company has a strong franchise in the tax service provider segment. While HRB has not been a strong long-term performer, it does possess a number of qualities which could make it an attractive investment at current levels. First, over the last year, HRB has posted return on equity of 47.80%, operating margins of 17.66%, and profit margins of 9.01%. Over the last several years, HRB's margins have been holding relatively steady, but have experienced a slight downdraft in 2011. On the downside, investors will be quick to note that HRB is not generating revenue growth, which is problematic. Fortunately, the stock makes up for this in two ways - it is cheap and it has a rich dividend yield. Shares trade at a forward P/E of just 9.82 and also sport a fat 4.87% dividend yield at current levels. Furthermore, the company has consistently raised its dividend over the years and has established a strong track record of returning capital to investors. The stock is also experiencing momentum in the near-term with shares rising more than 31% over the last year. The Buckle Inc. BKE - This company is a nice teen retailer and an interesting stock. The company sports very high margins and has a 39.93% ROE over the last year. Furthermore, BKE has been in an uptrend since going public in 2002 and is sitting near all-time high levels. Over any reasonable period of time, The Buckle has made its shareholders money. The stock also appears to be relatively inexpensive given its track record and strong business. BKE shares trade at a trailing P/E of 14.20, a forward P/E of 13.16 and a PEG ratio of 1.16. An added bonus to the stock is its 1.84% dividend yield. In addition, BKE has posted revenue and profit growth in each of the last five years and is continuing on a growth trajectory. Family Dollar FDO - This is definitely a stock that investors should have on their radar screen. The two biggest holders in FDO are funds run by billionaire value investors Bill Ackman and Nelson Peltz - not a bad sign. The company posted return on equity of 33.19% over the last year and has a long-term track record of creating shareholder value. Even better, FDO is not terribly expensive at current levels despite a 30% gain over the last year. The stock trades at a trailing P/E of 17.02, a forward P/E of 13.20 and a PEG ratio of 1. Furthermore, FDO is yielding 1.50% at current levels. Polaris Industries PII - This is a hot stock at a value price. The company is known for its ATVs and also designs, engineers and manufactures motorcycles and low emission vehicles. Over the last year, PII shares have risen nearly 66% and over the last 10 years, the stock is up 355%. Polaris posted an ROE of 55% over the last year to go along with a big jump in revenues. Given the company's track record and growth trajectory, its valuation certainly appears reasonable, if not cheap. The stock trades at a trailing P/E of 20.79, a forward P/E of 14.17, and a PEG ratio of 1.02. Polaris also sports a dividend yield of 1.40% at current levels. This is definitely a name to keep an eye on. Tupperware Brands TUP - This is another great brand which is trading at a reasonable valuation and experiencing strong operational momentum. Over the last year, TUP has posted ROE of 33.07% and the stock has risen around 37%. Tupperware Brands has also been a long-term creator of shareholder value, gaining better than 228% over the last 10 years. While revenue growth has not been explosive, it has been consistent, and the company has been able to grow its net income and profit margins each of the last 5 years. The shares trade at a trailing P/E of 18.47, a forward P/E of 12.58, and a PEG ratio of 1.19. The stock is also yielding a very healthy 1.90% at current levels.