We took a look at the stocks steering this market going forward. These companies have management champions, earnings growth, and are cementing their status as market leaders. Here is what we identified:
Ford (F): Alan Mullaly continues to pay down debt and produce cars that consumers want. Ford is still trading at a very low $14-15 per share, well below our fair value estimate of $23 per share, on a discounted cash flow basis. EPS for 2011 is forecast at 113% with a five-year projection of nearly 13%. Broad trends suggest that Ford is stealthily improving its position in the competitive landscape: A consolidation of brands, a gain in market share over the past year and the shedding of debt. On this last point, it was just announced that Ford will redeem, in cash, all 6.50% convertible trust preferred securities, effectively taking $3 billion in debt off its books and reducing total debt to $16 billion. As earnings announcements loom, these dual events could act as a catalyst to bring Ford's stock price nearer to fair value. We use an 11% discount rate for the company.
AT&T (T): AT&T made waves earlier last week, after being a multi-year leader in adoption of Apple's (AAPL) iPhone technology. AT&T is looking to purchase the fourth largest cellphone provider in the states, T-Mobile. This provides valuable, complementary spectrum to AT&T's non-CDMA technology and an exit plan for Deutsche Telecom (DTEGY.PK). Shares trade at a P/E of 8.8, P/B of 1.5, and P/S of 1.4. The industry averages are 16.1, 2.0, and 1.4, respectively. From 2001 to 2007, T shares traded at a P/S of 2.9, 2.1, 2.1, 2.1, 1.9, 2.2, and 2.2 respectively. In 2010, EPS was $3.35, which was an increase of 58.02%, after decreasing by 1.85% in 2009. The company expects mid-single digit EPS growth or better in 2011. Q1 2011 results are revealed on April 21.
Wells Fargo (WFC): On its way towards a much higher dividend, Warren Buffett has steadily accumulated shares of Wells over several years. Wells Fargo has kept it to basics with customer relationships and it is working. By focusing on the micro, it has been able to manage credit risk that translates to its more macro indicators: A fair value call at $39/share (a $7/share premium to current trading price), forward P/E of 8.8, 2011 EPS target at a solid 27% and PEG of 1.6. Speaking of dividends, WFC currently yields .63%, but given the previously mentioned stats, it seems to indicate that upward mobility might play into that figure.
Applied Materials (AMAT): This semiconductor giant continues to hold a dominant position in this fragmented industry. With a little over $4.1 billion in cash and investments and very little debt ($205 million) the company’s cash hoard allow it make strategic acquisitions and maintain its finances in this highly cyclical industry. We applaud Michael Splinter’s management of Applied in coming out of the crisis. Splinter and his management team have continued provide impressive results, including a very solid Q1 in which the firm generated $2.69 billion in revenue. That's up from $1.85 billion in same period a year ago. Shares trade at $15.44 at the time of writing.
Chevron (CVX): Recently edging through its 52-week high, Chevron is not just another large, diversified oil and gas company. The company was awarded another gulf drilling permit this past week. With a market cap of $210.48B, the stock pays a $2.88 (2.90%) yearly dividend and is trading at an 11.06 P/E ratio. The company has strong earnings, with a 13.51% operating margin, and also has an impressive 19.29% ROE over the last year. The company currently has more than enough cash to cover its total debt, and has experienced solid growth lately. Like Exxon (XOM), Chevron made a big move into natural gas with its multi-billion dollar acquisition of Atlas Energy. Finally, the company has exposure to many high growth opportunities, both in emerging markets and within alternative energy.
St. Jude (STJ): St. Jude recently won great reviews of its defibrillator product, Quadra. One of Medtronic's (MDT) biggest rivals, St. Jude's maintains an economic moat thanks to its diversified product offering and its key position in the $550 million dollar vascular closure market. What's more, 45% of STJ's sales come from abroad. The company could easily trade at our fair value estimate of $58 per share as healthcare spending recovers along with the broader economy. We use a 10% discount rate for our analysis.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.