In this article, I will examine seven companies with stocks that are priced between $10 and $20. Each of these companies has a market capitalization of over $1 billion. I will try to get a feel for whether these stocks can break out of their bases and reach $30 per share.
Ford Motor Co. (F): Ford operates in two lines of businesses. Its primary business is the production and manufacturing of cars and trucks. Its second business is the financial services business.
Ford has a market cap of $46.98 billion and a P/E ratio of 7.3. The stock has been a mediocre performer and is in a 52-week trading range between $10.95 and $18.97. The stock is currently trading at $12.37. Ford has been doing an admirable job of reducing debt and increasing revenue. On 12/31/2010, Ford had debt of $165.36 billion compared to debt of $192.04 billion on 12/31/2009. Current debt stands around $101.6 billion, the point being that Ford has been aggressive in paying off its debt. Revenue for 2010 was $128.954 billion up from $116.28 in 2009 and 2010 earnings were up to $6.561 billion from $2.717 billion in 2009.
Ford is expected to continue paying down debt and growing earnings throughout 2011. Over the past three years, Ford’s earnings have been in a strong upward trend and with a P/E ratio of 7.3 the stock has a low valuation. I believe that the stocks of U.S. car makers are depressed because of the industry's past difficulties. Ford is now moving in the right direction, and its stock should begin to show this progress. With a P/E ratio of 7.3 and a stock price of $12.37 this stock is underpriced. This stock will start moving toward $30 a share, and I rate it as a buy. Ford is a better bet than key competitor General Motors (GM).
U.S. Gypsum Corporation (USG): USG manufactures and distributes building materials. USG Corporation primarily sales cement and gypsum products like wallboards, fiber panels and construction plaster products.
USG Corporation has a market cap of $1.19 billion. The company’s P/E is negative as the company has not turned a profit in years. The company lost $405 million in 2010 and $787 million in 2009. Also, its first quarter revenue was $721 million, up from $696 million in the prior quarter. Predictably the stock has suffered as a result of the company’s poor earnings. USG Corporation’s stock is below both its 50 day and 200 day moving average and has traded in a 52 week range of between $11.34 and $19.90. The stock is currently trading at $11.49 toward the bottom of its 52-week trading range.
USG Corporation, along with the rest of the building and manufacturing industry, has been doing poorly. Perhaps when the economy improves the company’s earnings will do better. USG Corporation is currently in the midst of a long downward trend. The company has had a negative P/E ratio and negative free cash flow for the past five years. There is no way to tell when the company’s fortunes will turn around. I would not wait on this stock to make an upward move. USG sells much of its wallboard supply to Home Depot (HD) and Lowe's (LOW), limiting its pricing power to these two giants. I rate USG Corporation as a buy nonetheless, as investors currently do not appreciate the strong rebound in earnings at USG that will ensue once the housing market turns the corner.
Applied Materials Inc. (AMAT): Applied Materials offers manufacturing equipment to semiconductor and flat panel display makers. Its semiconductor products can be found in every semiconductor factory in the world.
Applied Materials has a market cap of $16.66 billion. The stock is trading in a 52 week range of between $10.27 and $16.93. The stock has shown mediocre performance and its current stock price is $12.64. The company’s revenue for the quarter ending May 31 was $2.863 billion, up from $2.686 billion in the prior quarter. At the end of the May quarter, Applied Materials had cash and equivalents of $3.3 billion along with very little debt.
With so much cash on hand and so little debt Applied Materials is a tempting buyout target for private equity firms. This is on the heels of AMAT's own buyout of Varian. When you factor in the stock’s current price of $12.64, and its surprisingly low P/E ratio 10.6, Applied Materials' stock will be on a lot of technology investors' buy lists. I think Applied Materials' stock will begin to move toward the $30.00 mark. I rate this stock as a buy.
Cisco Systems (CSCO): Cisco Systems, engineers, manufactures and sells routers and switches used for computer networking. The company also provides computer security systems.
Cisco Systems has a market cap of $86.3 billion and a P/E ratio of 12.3. The stock has performed poorly over the past year. The 52-week price range has been between $14.78 and $26.00. The stock is currently at the bottom of its 52-week price range at $15.69. The company increased earnings in 2010 to $7.767 billion from $6.134 billion in 2009.
Cisco has beaten analysts earnings over the last five quarters. The company’s earnings are expected to grow at a healthy rate of 11% over the next five years. The stock is down because its old core switching business is not doing well. However, its other business sectors have shown strong performance and may bring in $30 billion in revenue this year. Investors will eventually become acquainted with Cisco's new business dynamics, and begin to appreciate the company’s consistent earnings and strong balance sheet. I believe that with a stock price of 15.69 and a P/E ratio of 12.3 the stock is underpriced. I believe that Cisco Systems will move up in price, and I rate the stock as a buy. At its current valuation, Cisco is a better bet than Juniper Networks (JNPR).
News Corp. (NWSA): News Corp. is a multi-media corporation that operates in a number of sectors including cable news, network programming, film entertainment, motion pictures and television.
News Corp has a market cap of $29.25 billion. The company’s stock has been in a 52-week trading range of between $11.91 and $18.35. The stock last traded at $16.00. Recently the stock has been in a holding pattern after nose-diving because one of its subsidiaries (News of the World) was involved in an international phone hacking scandal. This company’s reputation has been hurt, and the stock will probably be dead in the water until the scandal has passed.
In recent years, News Corp has not been able to maintain consistent earnings growth. I do not see any earnings catalyst and do not think the company has any near term growth potential, especially given the unraveling story with the now defunct News of the World. I rate this stock as a hold despite the possibility for long-term potential.
Pfizer Inc. (PFE): Pfizer Inc. is a pharmaceutical company that offers prescription medicines, over the counter medicines, dietary supplements and animal medicines worldwide. Pfizer is the largest pharmaceutical company in the world and is known for products like Lipitor and Viagra.
Pfizer has a market cap of $152.49 billion. The stock is a high yield dividend stock with a 4.45% yield. The 52-week trading range has been between $14.88 and $21.45. This stock is currently trading at $19.52. Pfizer is a fundamentally strong company that has increased its revenues from year to year. Revenues were $48.296 billion in 2008, $50.009 in 2009 and $67.809 billion in 2010.
Investors have been concerned about Pfizer because the patent on its blockbuster cholesterol prevention drug Lipitor will soon be expiring. However, this company is so large and so fundamentally strong that it can easily survive the expiration of patent protection. If analyst earnings predictions are correct, Pfizer’s 2012 P/E ratio will be 8.9. With a dividend yield of 4.45% many investors would already consider Pfizer to be an attractive stock. If revenues continue to grow as they have over the last couple of years, Pfizer’s stock price should follow. I think Pfizer is a smart investment and I rate it as a buy.
General Electric (GE): General Electric is one of the largest corporations on earth. It is a diversified holding corporation which operates technology, media, financial services, aerospace and energy businesses.
General Electric has a market cap of 192.06 billion. The stock has traded in a 52-week range of between $14.25 and $21.65. The stock is currently trading near the middle of its trading range at $18.11. GE has increased its dividend over the last two years and its stock has a 3.13% dividend yield. The stock, however, has not done well as GE has suffered from the worldwide recession. Over the last three years, its revenue has decreased each year. In 2008 revenue was $182.515 billion, in 2009 revenue was $155.278 billion and in 2010 revenue was $150.211 billion.
Even though things are not going well for GE right now, it should be considered a leading technology and financial services company. With a P/E ratio of 14.10, the stock is not expensive, and you won’t mind holding it because of the dividend. GE is a stock you can feel comfortable with, and I believe the stock price will increase as we work our way out of the recession. I rate this stock as a hold but would consider buying the stock if it approached its 52-week lows.