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After the recent stock market correction many companies have reached attractive valuation levels and have a good upside potential. Following is a list of 14 mega cap companies which are trading at single digit forward PE and have upside potential of at least 25% according to median sell side price target.

Tkr

Company Name

Next Yr PE

Market Cap (mil)

Price Target % Diff from Price

BHP

BHP BILLITON LTD

9.81

130,571.17

25.51

BP

BP PLC

5.38

121,077.96

43.42

CVX

CHEVRON

6.97

186,878.32

29.69

XOM

EXXON MOBIL CORP

7.77

341,223.23

34.30

GE

GEN ELECTRIC US

9.46

160,171.09

48.91

INTC

INTEL CP

7.79

101,764.38

34.16

JPM

JPMORGAN CHASE

5.95

130,267.26

61.63

MSFT

MICROSOFT

7.62

200,910.81

33.44

ORCL

ORACLE CORP

9.41

126,941.80

51.64

PBR

PETROBRAS

6.55

100,063.79

69.58

PFE

PFIZER INC

7.75

137,941.61

30.09

RDS.A

ROYAL DUTCH SHELL

6.45

114,143.52

29.99

TOT

TOTAL SA

5.82

104,589.82

37.40

WFC

WELLS FARGO

6.62

120,855.56

52.91

The list is dominated by oil and gas names followed by Technology and Financial companies.

I believe oil and gas companies like BP Plc, Chevron, Petrobas, Royal Dutch Shell and Total SA will perform much better than what they did in 2008-09 if we again slip into a recession now. The money-printing binge of U.S. government is fuelling inflation across the globe and commodities are expected to benefit from it. I don’t see oil going below $70-80 this time around. Since oil and gas stocks directionally trade inline with the crude oil price, I don’t see much downside in them either. On the positive side the stocks are trading at very attractive levels and if things improve from here, there is a good potential upside.

Among the technology companies, I like Microsoft the most. Microsoft is a good medium term investments in these uncertain times. Its cash cushion limits the downside as well as enable it to make opportunistic acquisition if the valuations of target companies reach attractive levels. In addition, Microsoft is also taking a lot of new initiatives which can drive meaningful growth over the next few years. Some of the major catalysts for the stocks are the Windows 8 launch, Office 365 gaining traction and a successful launch of Nokia-WP7 phones. I think Microsoft offers an attractive risk reward for investors who can hold the stock for next one year.

Among banks both JP Morgan and Wells Fargo appears good long term play on potential U.S. recovery for conservative investors who do not have appetite for riskier banks like Bank of America .

I also like General Electric among the above stocks. The company reported strong 2Q11 results in July. In addition it saw strong order bookings which should support its top and bottomline in the near term. GE’s 2Q11 infrastructure orders were up 24% (versus +13% growth in 1Q11), equipment orders were up 33% and service orders were up 16%.

Source: 14 Undervalued Mega Caps