By Larry Gellar
Archer Daniels Midland Company (NYSE:ADM) – Best known for its work as a food processor, Archer Daniels Midland has been on a steady decline after nearly reaching $38 per share earlier in the year. Part of this has been due to some unfortunate events in the commodity markets, but prospects for ADM look rosy. As future estimates for world population continue to rise, this stock will benefit. In fact, some demographers have the world population going to 8 billion by 2023. Archer Daniels Midland also has an ethanol division that many investors are hoping the company will spin off. We agree with this sentiment and believe such a move would add value to the company. Additionally, ADM will benefit as the price of oil rises regardless of what happens with its ethanol business. (Note that future increases in the price of oil are almost inevitable). This is because the company has other divisions besides ethanol that represent alternative energy sources. As the price of oil goes up, these segments will surely see greater demand. Shareholders have also noted that company insiders do not buy the stock very often, but this may simply be due to the executives’ desire to diversify. Also, note that P/E and PEG for ADM are quite low at 9.28 and 0.94 respectively. This beats out rivals Bunge (NYSE:BG) and Corn Products International (CPO).
Emerson Electric Co. (NYSE:EMR) – Similar to Archer Daniels Midland above, Emerson Electric saw 52-week highs in February but has been down since to a current price of below $50. From a valuation perspective, Emerson is quite attractive – notably P/E and PEG are 15.55 and 0.99 respectively. This is lower than competitors like ABB (NYSE:ABB) and Hitachi (HIT), and Emerson’s margins are also better than those companies. Specifically, Emerson currently has a gross margin of 39.58% and an operating margin of 17.04%. Aside from the companies listed above, this also beats out General Electric (NYSE:GE), which has 36.79% and 11.15% for those same numbers respectively. On the other hand, there are also some concerns to be had with EMR. Total cash flow for the past 3 quarters has been a whopping negative $1.8 billion. Shareholders have also been wary of the company’s willingness to take on additional debt. Upcoming earnings for EMR have already been guided downward, and it seems likely that the stock price will fall once the actual results are posted. The wisest thing may be to wait for the stock to bottom out after earnings and then buy it before it creeps back upward. Some investors may find EMR attractive for its dividends; yield is currently at 2.8%.
Pfizer Inc. (NYSE:PFE) – As featured on this week’s cover of Fortune, Pfizer has been attracting some attention lately. The key events that have sparked this stock in the past year are related to executive turmoil. Specifically, CEO Ian Read took over in December after what has been dubbed by some as the “career assassination” of Jeff Kindler. While Pfizer’s other executives weren’t Kindler’s biggest fans, many investors are now questioning Ian Read’s moves or lack thereof. In particular, shareholders across the country are calling for Pfizer to spin off its remaining non-pharmaceutical businesses. While Ian Read has announced that a couple of these non-pharmaceutical businesses will be sold, that is not enough in the eyes of some. Additionally, Pfizer has been the victim of a weak R&D department, although there is some excitement to be found in upcoming products such as Axitinib, Crizotinib, and Tofacitinib. In many ways, it is difficult to forecast a company like Pfizer’s future success because some products literally take a decade to go from start to finish. Compared with other pharmaceuticals, we like Merck (NYSE:MRK) over Pfizer, and also believe that Bristol-Myers Squibb (NYSE:BMY) may be a better choice as well. Note that at 2.46, Pfizer has a rather unattractive PEG right now.
Sirius XM Radio Inc. (NASDAQ:SIRI) – This stock has been a tear since September of 2010, and at a measly price of $2 per share it’s not hard to see why this could continue. The closest thing to a competitor for Sirius XM is Pandora (NYSE:P) but truth be told they are not really in the same business. Pandora’s focus is on Internet radio, specifically channels that play music based on a single song you select. This is an interesting idea, but its future profitability is unlikely in the face of increased music piracy. (Note that the company does not even have profitability right now – last quarter’s net income was -$15.22M). Sirius XM will not be hurt as much by music piracy though because so many of its programs are talk shows or live broadcasts of things like sporting events. In many ways, it is the perfect entertainment option for the long car rides that many Americans will continue to endure. One great article detailing what to expect for Sirius XM’s earnings can be found here. An important point is that Sirius XM’s future success will largely depend on vehicle sales. This does not appear to be slowing down, and neither should Sirius XM’s profit. Additionally, many investors are excited about Sirius XM 2.0, the next version of its popular satellite radio.
XL Group plc (NYSE:XL) – This Irish insurance company is up over the past 12 months, and investors are now turning to Tuesday’s earnings to see what happens next to the stock price. Specifically, many investors are interested to see what the company’s latest book value will calculate to. The latest figure was 29.96 compared with a current price of 20.44. Although this stock obviously has been affected by negative financial events in Ireland, this certainly seems like a discount. Other valuation measures don’t turn out so well for XL though – P/E is 29.33 and PEG is 2.03. These both represent significant premiums in an industry that usually averages 10 and 1 for those numbers respectively. The best way to minimize risk would be to buy after the earnings call, but obviously this negates some of the profits to be had if the stock goes up. In some ways, this company is currently at a standstill because many shareholders realize additional risk will be needed to improve profits. At the same time though, it’s not quite ready yet to take such risks with the world’s finances still in recovery mode. There have always been rumors that this company is an acquisition target but it remains to be seen whether this actually comes to fruition. Such a move would likely send the stock soaring.
MetroPCS Communications, Inc. (PCS) – Although this company is known in some circles for its poor phone service, PCS stock has seen some serious gains in the past 12 months. In fact, look for this trend to continue when earnings are announced on August 2. Much smaller than AT&T (NYSE:T) and Verizon (NYSE:VZ), MetroPCS best compares with Sprint Nextel (NYSE:S). With an operating margin of 16.79 compared with Sprint Nextel’s 0.15%, it’s clear that MetroPCS is better suited for future growth. Gross margin and PEG are also favorable for MetroPCS, currently 42.69% and 1.36 respectively. For another great Seeking Alpha article on cell phone companies, consider reading this. Perhaps the most important point raised is that Sprint Nextel’s purchases of Virgin Mobile and Boost Mobile pose a serious threat to MetroPCS. These companies will fight MetroPCS for the low-end cell phone market and may come out on top due to increasing problems with MetroPCS’s call quality. Essentially, MetroPCS’s problem is that although it offers unlimited talk, text, and web, these features don’t actually work very well. The future success of this company is highly dependent on an improvement in quality as existing customers continue to get fed up. Luckily for MetroPCS, Sprint seems to be having a setback with its 4G service.
NYSE Euronext, Inc. (NYSE:NYX) – This company runs the New York Stock Exchange, Euronext, and NYSE Arca, and as such is best compared with Nasdaq OMX (NASDAQ:NDAQ), which is the company that runs the NASDAQ. In fact, NYX does not compare favorably, with a P/E of 14.42 and 0.96. Note that NDAQ’s numbers for these same metrics are 10.68 and 0.71 respectively. In the past 12 months, the stocks have moved in near lockstep, but NDAQ has been able to edge out NYX most of that time. The biggest news affecting NYX lately has been its potential acquisition by Deutsche Boerse (OTCPK:DBOEY), which runs marketplace services in Europe. The deal could fail to receive the approval of American and European regulators though since it would create such a large company in the one industry of security exchanges. Also, Deutsche Boerse recently reported earnings and missed analyst estimates by quite a bit, which prompted a sell off in NYX. NYX’s own earnings come on August 2, so that too will have an impact on the stock price. Additionally, NYX is being affected by news that it will buy the Japanese firm Metabit, which helps to facilitate transactions in the Asian markets. While NYX is certainly in an industry with strong potential, NDAQ may be the better choice from a valuation perspective for the time being.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.