Below is a list of 6 cheap companies reporting earnings on Thursday:
Microsoft Corp (MSFT)
- Forward P/E: 9.26
- Price/Book: 4.42
- Price/Sales: 3.22
- ROA (ttm): 19.34%
The technology giant reputation has morphed from a feared competitor to a gentle giant. Despite that perception, Microsoft is still a dominant and important company with varied growth opportunities both domestically and internationally.
Between 2006 and 2010, the company grew revenues from $44.28 billion to $62.484 billion. Microsoft's revenues were roughly equal to Apple Inc's in 2010 and more than double those of Google Inc (GOOG). Operating margins in 2010 were 39%, about 3% the previous three years' levels. In 2010, 83% of the company's revenues came from Windows & Windows Live, Server and Tools and Microsoft Business.
While the company has done a great job expanding their core segments, the market has punished them for failing to develop other businesses. Investors should pay close attention to margins, updates on Windows Azure and any further details about the company's agreement with Nokia (NOK) to produce Windows based mobile devices. The company's current smart phone footprint pales in comparison to Apple (AAPL) and Android. Any meaningful growth in this segment over the coming quarters could provide the first significant upside to this stock in a long time.
In addition, cloud computing companies like Rackspace Hosting (RAX) and Amazon.com (AMZN) have garnered attention and high multiples. If Microsoft Azure continues to grow, the segment could eventually provide upside potential. We think investors would be smart to take a closer look at Microsoft. It is one of the safest companies in technology and it has as much upside potential as it has had in a long time.
Aetna Inc (AET)
- Forward P/E: 9.18
- Price/Book: 1.52
- Price/Sales: 0.44
The health care benefits company had a rocky ride up from the September 2008 stock low, but this year the company has risen almost 30% as prospects for HMOs improve. There was an underlying fear that health care reform would hurt HMOs but investors like Glenview Capital have actually been bullish of the industry. In Glenview Capital's Shareholder Letter, they discuss the pricing benefits that come with the HMO oligopoly and the coming opportunities in 2014 as millions gain health insurance.
We think Aetna and other HMOs provide good opportunity to take advantage of the more expansive health care coverage but after the rapid increase in share prices over the last few months, we think investors should wait for stock price weakness.
American Greetings (AM-OLD)
- Forward P/E: 8.71
- Price/Book: 1.36
- Price/Sales: 0.60
The greeting cards company includes brand names such as: American Greetings, Recycled Paper, Papyrus, Tender Thoughts and Just For You. The company faces customer concentration risk with their fiver largest customers representing 39%, 26% and 37% of sales in 2010, 2009 and 2008, respectively. Wal-Mart Stores alone represent 14%, 15% and 16% of the totals in 2010, 2009 and 2008.
Between 2006 and 2010, the company's net sales declined every year. In 2010, revenues were $1.598 billion and operating margins held steady at 5%.
The company has a great brand name, but with stubbornly declining revenues and low margins, the company is not interesting even at these levels to passive minority investors.
Amkor Technology (AMKR)
- Forward P/E: 6.06
- Price/Book: 1.90
- Price/Sales: 0.41
Amkor is on of the world's top providers of semiconductor assembly and test services. Major customers include: Altera Corporation (ALTR), Texas Instruments (TXN), International Business Machines (IBM), Qualcomm (QCOM) and Sony Corporation (SNE).
The company is highly cash flow positive, but capital expenditures have also been high at $445.67 million in 2010 vs cash flow from operations of $542.6 million. Recent strong earnings have been partially driven by a roughly 2% decline in total expenses as a percentage of total sales. The company could be a way to bet on a cheap semiconductor industry but investors should be mindful of the company's debt load.
- Forward P/E: 14.42
- Price/Sales: 2.56
- ROA (ttm): 21.22%
The consumer products company owns popular products such as Colgate Total, Palmolive, Ajax, Speed Stick, Murphy's, Tom's of Maine and Irish Springs. Revenues were $15.56 billion in 2010, which was generally in line with the last few years. The company's revenues are internationally driven, with 22% coming from North America, 31% from Latin America, 24% from Europe and 22% from Asia and Africa.
The company trades at a trailing price/earnings that is roughly in line with a company of this profitability. At the forward price/earnings the company could offer good value. Colgate-Palmolive is a good company that could eventually become an acquisition candidate but investors can wait for a better entry point.
Eastman Kodak (EK)
- Forward P/E: n/a
- Price/Sales: 0.12
Eastman Kodak is a beaten down company, but there are that we find interesting. We featured the company in 8 Cash Rich Stocks Trading near 52-Week Lows because their $1.624 billion of cash is greater than their long term debt and almost double the market capitalization.
Among the things that we find interesting, the company is so beaten down that it will not take much of a catalyst to push the stock meaningfully higher. With revenues at $8.091 billion in 2010 and $8.101 billion in 2009, it seems like the company has found some stabilization in the business. Eastman Kodak's recent sale of 850 image sensor patents to OmniVision (OVTI) for $65 million also highlights some of the company's hidden assets.
According to the recent proxy, management would have a lot to gain from a change of control. A.M Perez could see a $17 million payout. A.P McCorvery could see a $2.7 million payout. P.J. Faraci could see a $9.59 million payout. P. Jotwani could see a $4.04 million payout.