I am recommending you sell or significantly reduce your exposure to the Gold ETF (GLD) and buy a basket of these six DOW stocks with great stories and positive catalysts. Additionally, these six stocks are trading at a substantial discount.
The GLD has been on a tear over the last year. I believe the GLD ETF is a crowded trade and is overbought. Furthermore, I believe the FED has inflation risk properly managed and is preparing to end the QE2 program. This will strengthen the dollar and subsequently reduce the value of gold. It is only a matter of time before the big run up in the GLD unwinds. It seems the Silver ETF (SLV) has already begun to unwind. The SLV has had a torrential drop from a high of nearly 50 to the low 30s in a matter of days. Sell the GLD and buy a basket of the following DOW stock value plays.
These six DOW stocks have great stories and positive catalysts for future growth and PEG ratios of less than 1. The PEG ratio is a broadly-used indicator of a stock's prospective worth. It is preferred by numerous analysts over the price/earnings ratio because it also accounts for growth. Similar to the P/E ratio, a lower PEG means that the stock is more undervalued. Many financiers use 1 as the cut-off point for PEG ratios. A PEG of 1 or less is believed to be favorable. These are bullish indicators regarding a stock's possible future performance.
Nonetheless, this is only the first step in finding winners for your portfolio. Now that we have cut the wheat from the chaff, let's take a closer look to distinguish the driving factors behind these remarkable statistics.
Below are four tables with detailed statistics regarding company summaries, price performance, fundamentals and earnings and dividends followed by a brief description of each company, a summary of current analysts' estimates and up/downgrade activity followed by a chart of the company's key statistics. Please use this as a starting point for your own due diligence.
Earnings & Dividends
Alcoa, Inc. (AA) - Engages in the production and management of aluminum, fabricated aluminum, and alumina. The company operates in four segments: Alumina, Primary Metals, Flat-Rolled Products, and Engineered Products and Solutions.
Alcoa recently announced first quarter 2011 income from continuing operations of $309 million, or $0.27 per share, a 20 percent improvement over fourth quarter 2010, led by improved pricing and growing demand for aluminum in major end markets. Income from continuing operations, excluding a negative impact for special items of $8 million, or $0.01 per share, was $0.28 per share. First quarter 2011 income from continuing operations was the highest since second quarter 2008, and compares to fourth quarter 2010 income from continuing operations of $258 million, or $0.24 per share, and a first quarter 2010 loss from continuing operations of $194 million, or $0.19 per share. Fourth quarter 2010 income from continuing operations included a $35 million, or $0.03 per share, positive impact for special items, while the loss from continuing operations in first quarter 2010 included a $295 million, or $0.29 per share, negative impact for special items.
The company is trading significantly below analysts' estimates. AA has a median price target of $21 by 12 brokers and a high target of $28. The last up/downgrade activity was on Apr 12, 2011 when, BMO Capital Markets downgraded the company from Market Perform to Underperform. Please review the illustration for AA's summary and key statistics.
Caterpillar Inc. (CAT) - Manufactures and sells construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives worldwide.
CAT recently announced sales and revenues of $42.588 billion for 2010, an increase of 31 percent from $32.396 billion in 2009. Profit in 2010 was $2.700 billion, an increase of 202 percent from 2009 profit of $895 million. Profit per share of $4.15 was up from $1.43 in 2009. Excluding redundancy costs, profit per share in 2009 was $2.18. Fourth-quarter sales and revenues were $12.807 billion, an increase of 62 percent compared with $7.898 billion in the fourth quarter of 2009. Fourth-quarter profit of $968 million was 317 percent higher than profit of $232 million in the fourth quarter of 2009. Profit per share of $1.47 was up from $0.36 per share in the fourth quarter of 2009. Excluding redundancy costs, profit for the fourth quarter of 2009 was $0.41 per share.
Caterpillar Chairman and Chief Executive Officer Doug Oberhelman stated:
"As the global economy continued to improve, the demand for Caterpillar products increased substantially with fourth-quarter sales and revenues up 62 percent. 2010 was a good year, and we accomplished a great deal. We substantially ramped up production, improved factory efficiency, drove Machinery and Engines (M&E) operating cash flow to an all-time record, launched a number of capacity additions and new product programs to prepare us for the future and announced several substantial acquisitions."
The company is trading significantly below analysts' estimates. CAT has a median price target of $130 by 16 brokers and a high target of $150. The last up/downgrade activity was on Jun 16, 2010 when, Jefferies initiated coverage on the company with a Buy rating. Please review the illustration for CAT's summary and key statistics.
General Electric Company (GE) - Operates as a technology, media, and financial services company worldwide. Its Energy Infrastructure segment produces gas, steam, and aero derivative turbines; generators; combined cycle systems; and renewable energy solutions, as well as provides water treatment services and equipment.
GE recently announced strong first-quarter 2011 operating earnings of $3.6 billion, up 58%, or $0.33 per share, up 65%, from the first quarter of 2010. GAAP earnings from continuing operations (attributable to GE) were $3.4 billion, or $0.31 per share, both up 48% year-over-year. Revenues grew to $38.4 billion for the quarter, up 6% from a year ago. In addition, GE raised its quarterly dividend by $0.01 to $0.15 effective in the third quarter of 2011. This is the third dividend increase declared in the last 12 months and reflects GE leadership's confidence in the company's business performance.
GE Chairman and CEO Jeff Immelt said:
"As today's results show, GE has emerged from the recession a stronger, more competitive company. GE Healthcare, Transportation and Aviation delivered strong results. Strategic investments in high-growth segments have strengthened the company's Energy portfolio and position that business to return to growth in the second half of this year. We ended the quarter with a record high backlog of $177 billion."
The company is trading significantly below analysts' estimates. GE has a median price target of $23.50 by 13 brokers and a high target of $30. The last up/downgrade activity was on Jan 28, 2011 when, Argus upgraded the company from Hold to Buy. Please review the illustration for GE's summary and key statistics.
Hewlett-Packard Company (HPQ) - Offers various products, technologies, software, solutions, and services to individual consumers and small- and medium-sized businesses (SMBs), as well as to the government, health, and education sectors worldwide.
HP recently announced financial results for its second fiscal quarter ended April 30, 2011. Net revenue of $31.6 billion was up 3% from the prior-year period as reported and up 1% when adjusted for the effects of currency. GAAP diluted earnings per share (EPS) was $1.05, up 15% from $0.91 in the prior-year period. Non-GAAP diluted EPS was $1.24, up 14% from $1.09 in the prior-year period. Non-GAAP financial information excludes after-tax costs of approximately $0.19 per share and $0.18 per share in the second quarter of fiscal 2011 and 2010, respectively, related primarily to the amortization of purchased intangibles, restructuring charges and acquisition-related charges.
Léo Apotheker, HP president and chief executive officer stated:
"HP executed well and delivered a solid quarter. Our enterprise strategy, with services at its core, is focused on higher value-added solutions. Today we are accelerating our efforts to align our services business model to our long-term strategy to deliver unprecedented value to our customers and a better return for our shareholders."
The company is trading significantly below analysts' estimates. HPQ has a median price target of $44 by 27 brokers and a high target of $65. The last up/downgrade activity was on May 17, 2011 when, ISI Group downgraded the company from Buy to Hold. Please review the illustration for HPQ's summary and key statistics.
Intel Corporation (INTC) - Engages in the design, manufacture, and sale of integrated circuits for computing and communications industries worldwide. It offers microprocessor products used in notebooks, netbooks, desktops, servers, workstations, storage products, embedded applications, communications products, consumer electronics devices, and handhelds.
Intel recently announced that its board of directors has approved a 16 percent increase in the quarterly cash dividend to 21 cents per share (84 cents per share on an annual basis), beginning with the dividend that will be declared in the third quarter of 2011.
Paul Otellini, Intel president and CEO stated:
"Worldwide demand for computing continues to increase at a very rapid rate, putting Intel on track for revenue growth of over 20 percent this year, delivering another record year for the company. Intel's current and projected growth is generating strong cash flow, allowing us to further increase our dividend. We are delivering on our commitment to return cash to shareholders with annual dividend growth that's already more than five times the S&P 500."
The company is trading significantly below analysts' estimates. INTC has a median price target of $27 by 37 brokers and a high target of $31.50. The last up/downgrade activity was on Apr 20, 2011 when, FBR Capital upgraded the company from Market Perform to Outperform. Please review the illustration for INTC's summary and key statistics.
Microsoft Corporation (MSFT) - Develops, manufactures, licenses, and supports a range of software products and services for various computing devices worldwide.
The latest news on MSFT is hedge Fund Guru David Einhorn's call for MSFT's CEO Steve Ballmer to step down. I don't know what will happen but the stock was up 2% on the news! I believe it is a positive for the stock and having Einhorn bringing attention to MSFT's performance can only help.
MSFT and Skype Global recently announced that they have entered into a definitive agreement under which Microsoft will acquire Skype, the leading Internet communications company, for $8.5 billion in cash from the investor group led by Silver Lake. The agreement has been approved by the boards of directors of both Microsoft and Skype. The street is divided on the move with many calling for MSFT's cash hoard to be distributed back to shareholders rather than spent on Skype. MSFT seems to have paid quite a premium for the company. I question the integration of MSFT's pay services with Skype's nonpaying customers. MSFT has significant free cash flow so this is a relatively insignificant purchase for MSFT, but on the other hand. I don't see the Skype acquisition moving the growth needle for them much either. Time will tell.
The company is trading significantly below analysts' estimates. MSFT has a median price target of $34 by 28 brokers and a high target of $38. The last up/downgrade activity was on Feb 17, 2011 when, Collins Stewart initiated coverage on the company with a Buy rating. Please review the illustration for MSFT's summary and key statistics.
Information was gathered from CNBC, Yahoo Finance and respective company websites. Based on the current market conditions I would suggest scaling in to any position to reduce risk. I believe all these stocks are currently undervalued and provide significant opportunities for long term investors. Please use this information as a starting point for your own due diligence.