DRD Gold Limited is South Africa’s fourth largest gold mining company which is engaged in the exploration, extraction, processing, and the smelting of gold. Drd Gold reported revenues of $285 million in the year 2010. The 52-week trading range for its shares is $3.92 to $6.2.
The company‘s reserves are situated in places like Blyvoor, Crown and Ergo. DRDGold's gold production decreased by 17.8% in 2010 (which is about 106,452 ounces), the company’s realization prices increased by 19% in 2010 . DRDGold expects its production to increase by around 10 %( 265,200 ounces) and its capex by 70% in 2011. DRDGold is trading at 0.65 times revenue for the fiscal year and its PE is around 3.88 times its 2010 earnings. We believe this stock is a good buy based on its cheap valuation and strong outlook for gold's price-- which is expected to rise to $1,750/oz in 2015. Moreover, DRDGold Limited valuation is trading at a discount as compared to its largest competitor AngloGold Ashanti (AU), with a PE of 97 and a price to sales of approximately 2.8 times its 2010 revenues. DRDGold's dividend yield for 2010 was 1.3% and we expect the company to maintain it.
Ford is a leading global manufacturer and the distributor of various automobiles. Ford also provides financial services through Ford Motor Credit. The company reported its revenue of $229 billion in the FY2010. The trading range for the share in the past year is $10.95 - $18.97. The company reported operating margins in its U.S. business of about 10% in fiscal year 2010.
Ford generated the EPS of 1.20 in the first half of 2011. Analysts forecasted EPS of 2.20 for fiscal year 2011. Based on 2011 earnings, the company is trading at around 5.57. According to the estimates, the company sales may increase by approximately 8% in 2011. The sales volume in Asia is expected to increase by around 10%; however, sales volume in America and Europe would stay flat. We believe Ford is a strong buy based on a huge discount in the valuation to Japanese giant Toyota (TM) (which is trading at 24 times its 2010 earnings). Moreover, Ford commands the highest pricing power among its competitors. With Japanese auto makers struggling to maintain supply due to the earthquakes and tsunami, Ford is expected to gain market share in the U.S. market. Ford is also trying to decrease its debt, and did decrease it by 2.6 billion in the second Quarter of 2011.
AEGON N.V (AEG)
Aegon N.V is an international life insurance and asset Management Company. Aegon's life segment income has increased by 13%, while pension income increased by 19% in the past year. The company’s costs decreased by 15% with the reduction in employment benefits plan outlays. In April 2011, AEGON sold a major a part of its Transamerica Reinsurance unit to Scor (SCOR.PA) at a higher price than expected, which helped it repay monies received under its state aid program. Aegon's long term plans are to increase its ROE to around 10% to 12% by 2015, and to increase its earnings before interest and taxes by around 10% per annum for the next 5 years. The company is also trying to reduce exposure to the financial markets through its holdings. Aegon N.V is trading at around 8 times of its 2011 earnings. According to average analyst estimates, Aegon may report EPS of around 0.72 in the year 2011. Aegon's 52-week trading range is $5.05 - $8.07. We believe these shares are a strong buy at current levels, with a price to book ratio of only 0.31 times, which is around a 30% discount to its global peers. Moreover, Aegon also plans to pay a dividend again of 0.10 Euros per share over the second half of 2011.
Cloud Peak Energy (CLD)
Cloud Peak Energy (CLD) is the third largest producer of coal in the U.S. In the year 2010, Cloud Peak Energy’s coal production was about 95.3 tons. The company reported revenues of $1.4 billion in 2010. Its operations in the Power River Basin are considered the lowest cost coal-producing region in the U.S. Cloud Peak Energy produces only sub-bituminous steam coal with low sulphur content and sells primarily to domestic electric utilities. Cloud Peak has around 47 customers with over 108 domestic plants. Cloud Peak Energy generated gross margins of 28.5% in 2010.
The 52 week range for shares is $14.69 - $24.69. Cloud Peak Energy is trading at around 11 times its estimated EPS of 2.04 for 2011. Besides a favorable valuation, Cloud Peak Energy is one of the largest buyout candidates for Peabody Energy (BTU). We recommend a buy on shares based on the favorable valuation and strong outlook for the coal industry. According to industry estimates, coal demand will increase by around 1.2 billion tons annually. Moreover, analysts believe that U.S. thermal coal contract prices will remain high in 2012 and 2013. According to the U.S. Energy Information Agency’s 2010 International Energy Outlook , the world’s coal consumption will increase by 56 percent from year 2007 to 2035 and suppliers will struggle to fulfill the increasing demand for both metallurgical and thermal coal. The prospects for CLD are definitely bright and rewarding.
USG Corp is a leading manufacturer and distributor of building materials, the company has three major brands-- namely Sheetrock, Durock, and Fiberock. The company’s three reporting segments are North American Gypsum, Building Products Distribution and Worldwide Ceilings. The gypsum segment contributes around 52% of the company’s total revenues. In 2008, Warren Buffett's Berkshire Hathaway (BRK.A, BRK.B) invested $300 million in USG Corporation.
The company generated net sales of $2.939 million in year 2010, while the net loss for the year was $405 million with a loss per share of $4.03. The company net loss decreased to $70 million in 2Q 2011 from that of $74 million in 2Q 2010. The shares' 52-week range is $11.20 - $19.91. According to our calculations following analyst estimates, the company would be reporting a net loss per share of 2.86 in fiscal year 2012.
We believe USG is a buy for risk-taking investors because of the expected turnaround of the housing industry by 2013. According to the National Association of Realtors, new home sales and housing starts would improve in 2012 after a minor drop in 2011. Comparing 2011 quarter two with NAR’s projected 2012 quarter four, new home sales and housing starts are predicted to rise by 45%. We think this fact is underappreciated by investors. Bullishness in Home Depot (HD) and Lowe's (LOW) should lead to bullishness in undervalued upstream operators like USG.
Bank of America Corporation (BAC)
Bank of America provides a diversified range of banking and non banking financial services and products through six business segments: Deposits, Global Card Services, Home Loans & Insurance, Global Commercial Banking, Global Banking & Markets and Global Wealth & Investment Management. In September 2008, Bank of America acquired Merrill Lynch and in the same year it also acquired the mortgage company Countrywide. These acquisitions remade the face of the company.
Bank of America reported a net loss of $ 8.8 billion for the second quarter of 2011 as compared to the net profit of $3.1 billion in 2010's second quarter. The net loss is due to the recently announced agreement to resolve nearly all of the legacy Countrywide-issued, first-lien, non-GSE, residential mortgage-backed securitization (RMBS) repurchase exposures, as well as the impact of other mortgage-related costs. The 52-week trading range is $9.40 - $15.31. The price to book value is around 0.4.
We believe Bank of America is a buy for risk-taking investors, as it is still in the early innings of strengthening its balance sheet. Moreover, the provisions for credit losses also declined by 60% from the previous year. The number of new U.S. credit card accounts, increased by 11 percent in quater two, 2011 from that of quarter two, 2010. Based on our review of analyst estimates, Bank of America is trading at around 5 times its 2012 earnings. We think it is a better bet than Citigroup (C). We find management at BAC much more transparent in articulating a viable strategy. This is not to say that the company is without flaws, however, so we only recommend shares for those willing to take on significant execution risk.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.