Apogee Enterprises (APOG) is one of my favorite deep value blue-chips because it combines a relatively attractive yield, with high safety, and some of the best long-term growth potential on Wall Street.

All in a package so undervalued that it could potentially quadruple your investment over the next five years merely growing as expected and returning to fair value.

That’s why Dividend Kings’ Phoenix portfolio has now bought it four times, meaning a full position for us (my retirement portfolio owns it as well).

Bullish Thesis

Apogee’s expected to have a bad year, which isn’t a surprise given that it’s a construction material company that makes window framing systems.

• Fiscal 2021 analyst consensus (this year): -13% (-22% for S&P 500)
• 2022 consensus: +25%

However, next year is expected to see a strong return to growth, not just due to the economic rebound, but also the turnaround plan that management has been executing well and that analysts expect to drive significantly higher margins in the future.

How much higher? Its long-term growth consensus is 15% CAGR or about two to 2.5 times the growth consensus for the S&P 500.

To sum up:

• 3.3% very safe yield vs 1.9% S&P 500 (and 2% to 2.5% most dividend growth ETFs)
• 15% CAGR long-term growth consensus vs 6.4% for the S&P 500 and 5% to 7% most dividend growth ETFs
• 55% undervaluation vs 24% to 50% overvaluation for S&P 500

Risks To Consider

• the turnaround might still potentially fail (20% to 40% of the time analysts are wrong about a company’s long-term growth prospects)
• The second wave expected in the fall could trigger a W shaped double-dip recession that might result in medium-term growth missing expectations.
• this is a cyclical business whose economic sensitivity means that it often misses 1 and 2-year forecasts.

APOG is one of the most volatile companies on Wall Street, meaning that it should only be owned as a small part (2.5% or less) of a well-diversified and prudently risk-managed portfolio.

(Source: Ycharts)

Valuation/Total Return Profile

• 2020 average historic fair value: $50
• current price: $22.5
• discount: 54%
• potential good buy price: $40
• Dividend Kings rating: potentially ultra-value buy

APOG 2025 Consensus Return Potential

(Source: F.A.S.T Graphs, FactSet Research)

If APOG grows as expected and returns to the mid-range of historical fair value it could nearly quadruple your investment over the next five years.

(Source: F.A.S.T Graphs, FactSet Research)

That’s 4X the return potential of the broader market.

APOG 2022 Consensus Return Potential

(Source: F.A.S.T Graphs, FactSet Research)

The consensus return potential for APOG over the next two years is well over 100%.

(Source: F.A.S.T Graphs, FactSet Research)

Which is about 20X the return potential of the S&P 500 over that time.

Putting It All Together: Why APOGis A Potentially Great High-Yield Investment Right Now

I base all my investing decisions based on the three priorities of long-term income investing.

• APOG’s current debt/metrics and average long-term interest rate (2.2%) means this unrated company has an implied credit rating of A- or A.

(Sources: Dividend Kings Investment Tool, S&P, The University of St. Petersberg)

APOG Dividend Return Potential

(Sources: Dividend Kings Investment Tool)

APOG Probability-Weighted Expected Return

(Sources: Dividend Kings Investment Tool)

APOG Decision Matrix

Relative to the S&P 500 APOG is a potentially excellent investment decision today, courtesy of a safe 3.3% yield, that’s likely to grow at a rapid pace in the coming years, returning nearly a quarter of your investment in dividends.

It’s also capable of about 4X the total returns of the broader and extremely overvalued market.

I recommend a 2.5% or less risk cap on APOG, due to the somewhat speculative nature of its current risk profile.