Seeking Alpha
Profile| Send Message| ()  

In this review, I first want to revisit one of my screens run on November 23rd to see how the stocks highlighted have performed -- a sort of grade card to see if this screen is worth following in the future.

The purpose of this screen is to identify strong companies with stocks that may have already, or very soon will be, bottoming. Of course, depending on your view, these may also be short sale candidates given they are bouncing around their 52 week lows.

This screen looks for highly liquid stocks (average of more than 2 million shares traded daily), strong short term asset positions (quick ratio greater than one), price within 5% of the 52 week low and a price is greater than $5. The prior run of this screen yielded five stocks. So, how have they performed since then ?

Compared to the S&P 500 (the benchmark I track my own performance against) up 2.1% and four of the five stocks have nicely outperformed the benchmark.

23-Nov

19-Dec

Change

Gain

DuPont (DD)

43.12

44.85

1.73

4.0%

Devon Energy (DVN)

53.03

53.77

0.74

1.4%

Intel (INTC)

19.72

21.1

1.38

7.0%

Norfolk Southern (NSC)

57.76

62.15

4.39

7.6%

Microchip Technology (MCHP)

29.99

32.46

2.47

8.2%

SPDR S&P 500 (SPY)

141.35

144.29

2.94

2.1%

Not bad. Given this performance, it seems another run may be worth a look. Since the prior run, there have been few earnings announcements so the drivers for being added or dropped from the screen are more driven by price. Next quarter, I plan to re-run this to see what happens with another period of balance sheet data added to the mix.

Running this screen again, eight names appeared this time. I made one small change to cast the net a bit wider -- this version looks for stocks within 10% of the 52 week low rather than just 5%.

Activision Blizzard (ATVI) is in the Technology - Multimedia & Graphics Software business, publishing online, personal computer, console, handheld, and mobile interactive entertainment. Their main competitors are Electronic Arts (EA), Sony (SNY) and Take-Two Interactive (TTWO). ATVI has a quick ratio of 2.8, most of their short term assets are in cash and they have very little long term debt. Currently trading just under $11, it has $3 per share of cash on hand. The average analyst target is $14.81, giving this a potential 36% upside. Being in the gaming business, much of their future stock price will depend on holiday sales, but with a strong balance sheet like this, they have plenty of room to make strategic decisions.

DuPont was on the screen last time. With a 4% gain since the prior review, this still has some room to run. While they do have operational issues to address, the $1 billion stock buy-back program shows a commitment to delivering shareholder value. The average analyst target is $50.61 giving this stock a potential 13% upside plus the 3.8% dividend yield.

Devon Energy Corporation is also a repeat from the last screen. This one has underperformed both the stocks from the last screen and underperformed the S&P 500. Analysts have an average $72.06 price target suggesting a 34% upside (plus 1.5% dividend), but its fortunes may be too leveraged to natural gas. Now, just because it did not pop like a few of the others, it should not be immediately dismissed. It may just be that the conditions for a rise have not occurred for this one yet. I would continue to watch this one. This may be a better to play from the short side in the near term.

Exelon Corporation (EXC) is in the Diversified Utilities industry. From finance.yahoo.com, their company description is:

Exelon Corporation, a utility services holding company, engages in the energy generation and distribution business in the United States. It is involved in the generation of electricity from nuclear, fossil, hydro, and renewable energy sources; and wholesale and retail customer supply of electric and natural gas products and services, including renewable energy products, risk management services, and natural gas exploration and production activities. The company also engages in the purchase and regulated retail sale of electricity; provision of distribution and transmission services in northern Illinois, southeastern Pennsylvania, and central Maryland. In addition, it is involved in the purchase and regulated retail sale of natural gas; and the provision of distribution services in the Pennsylvania counties surrounding the City of Philadelphia, as well as in central Maryland, including the City of Baltimore. The company serves residential, commercial, industrial, and wholesale customers; and owns generation assets with approximately 34,650 megawatts. It delivers electricity and natural gas to approximately 6.6 million customers in central Maryland, northern Illinois, and southeastern Pennsylvania.

With a geography like this, it will be very difficult for them to realize any operational synergies. Their quick ratio is 1.3, most of the short term assets are in receivables, however this balance sheet however is loaded with long term debt so caution is advised. Analysts have an average $34.44 price target suggesting a 14% upside (plus a healthy 6.9% dividend - caution though, the payout ratio is 112%). Given the barriers to operational synergies and the heavy debt load, this one may not be a bargain after all.

Intel Corporation Technology is also a repeat from the prior screen. The nice 7% gain since November 23rd has been good and the average analyst price target of $23.14 suggests there is still another 10% to gain. The 4.3% dividend yield is also a nice addition to any portfolio.

Newmont Mining Corp. (NEM), as the name suggests, is a mining company focused on copper and gold. They have operations in the United States, Australia, Peru, Indonesia, Ghana, New Zealand and Mexico. Their main competitors are AngloGold (AU), Barrick Gold (ABX) and Goldcorp (CG). NEM came up on this screen because they have a good quick ratio at 2.7. However, they are carrying a lot of long term debt which offsets the value of a good short term asset position. Analysts have an average $62.41 price target suggesting a 42% upside (plus a 3.2% dividend - caution this has a 636% payout ratio, clearly not sustainable!!). Gold mining stocks get a lot of interest as some investors seek alternative plays to buying gold or the (GLD) directly. And there is potentially some merit in NEM as a hedge investment with the negative beta is holds (negative beta meaning is tends to move in the opposite direction of the market). However, tread cautiously. If you want to play gold, then better to play gold directly or via the GLD. If you buy a miner, you are also buying the operational variables that impact performance on top of gold market pricing.

Occidental Petroleum (OXY) is classified as operating in the Major Integrated Oil & Gas industry. It has three major businesses - oil and gas production; chemical manufacturing and their other segment described as "gathers, treats, processes, transports, stores, purchases, and markets oil, condensate, NGLs, natural gas, and carbon dioxide. This segment also trades around its assets consisting of pipelines and storage capacity, as well as oil and gas, and other commodities; and engages in the power generation activities." Their main competitors are Exxon Mobile (XOM) and another one our screen finds, DuPont . OXY is a strong operating company with a very clean balance sheet, including a 1.7 quick ratio and little long term debt. OCY may be at the bottom of the 52 week range for two reasons - first, it is partly levered to natural gas which is generally down and second, it is so diverse, it is hard to value this company. It does not fit neatly into a clean model that says "X amount of earnings times an industry specific P/E yields price Y". This probably drives a little of the discounting. From the current price, analysts are targeting a $99.65 price, suggesting a 27% upside (and a nice 2.8% dividend). OXY may not have a quick pop, but this looks like a good long term investment.

VeriFone Systems (PAY) operates in the Business Equipment industry focusing on electronic payment systems (for example credit card readers, contactless card readers and software for ATMs). Their main public competitor is NCD Corp (NCR). It has a solid 2.1 quick ratio. Analysts are targeting a $41.14 price suggesting a 40% upside potential (PAY does not pay a dividend). This could have a nice upside but in their markets, new competitors and disruptive technologies constantly emerge which could materially impact their business. Be careful, this may be a better trading than investing stock.

So, we have three repeats and five new stocks. Let us see how these stocks perform in the coming weeks and months and ultimately if this screen proves to be profitable.

Source: 8 More Balance Sheet Bargains