Investment markets have been hit by uncertainty: the problems of European debt, and the realisation that the United States’ own mountain of debt is fast becoming immovable. In such an environment, it is often difficult for investors to see the value in stocks. Here we look at five A grade stocks to see if investors could benefit from owning them:
ATP Oil & Gas (ATPG): Shares are trading at $10.20, at the low of their 52-week trading range of $6.26 to $21.40. At the current market price, the company is capitalized at $521.08 million. Earnings per share for the last year were -$8.67, It paid no dividend .
ATP’s earnings have suffered as its exploration program has taken its toll on costs. However, it has a high level of oil and gas reserves (around 125 million barrels of crude oil equivalent). These should underpin the share price, and if oil prices can rise going into the winter period in the northern hemisphere, then the stock price could move accordingly. However, with the Libyan conflict now appearing to be at an end, perhaps more value could be found in ENI S.p.A (E), the company that has the largest ratio of its production from Libya (of the major oil companies). With production from Libya possibly to resume in the near future, ENI could benefit from a further 10% output flowing from its fields. With a dividend yield of 5.70%, and a low price to earnings ratio of 8.21 on earnings per share of $4.79 last year, ENI’s shares are a better bet in the short-term but we still like ATPG going into 2012.
Assured Guaranty Ltd (AGO): Shares are trading at $11.83 at the time of writing, as against their 52-week trading range of $9.71 to $22.30. At the current market price, the company is capitalized at $2.18 billion. Earnings per share for the last year were $0.48, placing the shares on a PE ratio of 24.80. It paid a dividend last year of $0.18, yielding 1.60%.
If the economy is heading south, which looks increasingly likely, then defaults on mortgages and other credit arrangements will likely increase. Assured Guaranty’s business is primarily the insurance and reinsurance of this type of debt. Whilst premiums may rise, and the numbers of policies increase as times become more difficult, so too will claims. This makes a call on this stock too ambiguous for my liking, though on this basis I probably wouldn’t want to be invested in this sector of the market at this time.
Sun Bancorp Inc (SNBC): Shares are trading at $3.04 at the time of writing, as against their 52-week trading range of $2.30 to $5.45. Earnings per share for the last year were negative at -$3.40, and it paid no dividend.
Just because a share price is low, doesn’t mean it is good value. Investors should look at the numbers behind the share price, and this is a classic case of needing to do so. The company’s commercial and retail banking business is producing good cash flow, but its lending services look fragile. Compare the numbers to competitor PNC Financials Services Group (PNC), where cash flow too is good, and earnings are solid. PNC pays a dividend (last year this was $1.40, yielding 3.30%). Its business is sound and better managed, and it has cash per share of $35.46 to underpin its share price of $45.00. Its revenue per share was over $24 last year, whereas Sun Bancorp had a negative revenue per share. It's easy for an investor to see which of the two companies is the investing option.
Yahoo Inc (YHOO): Shares are trading at $13.35 at the time of writing, as against their 52-week trading range of $11.09 to $18.84. At the current market price, the company is capitalized at $16.86 billion. Earnings per share for the last fiscal year were $0.88, and it paid no dividend.
The name Yahoo is synonymous with Internet usage, as is Google (GOOG). Yahoo is the home page for many users, whilst Google is the search engine of choice. Yahoo’s price to earnings ratio of 15.14 is similar to Google’s 18.72, though Google’s operating margin of 33.62% is double that of Yahoo’s. Google’s management seem better at monetizing their business than Yahoo, and its recent purchase of Motorola Mobility indicate its determination to drive the business forward, putting its cash pile to better use than accumulating interest. Use Yahoo, invest in Google.
Tata Motors Ltd. (TTM): Shares are trading at $16.12 at the time of writing, at the bottom of their 52-week trading range of $15.38 to $37.65. At the current market price, the company is capitalized at $10.23 billion. Earnings per share for the last year were $03.23, and it paid a dividend of $0.42 (a yield of 2.70%).
Tata’s market for its vehicles is mainly in India, where sales have been rising through the last few years of economic growth. However, with this growth slowing, the sales of Tata’s cars will follow. But Tata has been making inroads to markets abroad, where demand for its small, economic models could rise well over the coming years. Tata’s production costs are lower than those of rivals such as Ford (F) and General Motors (GM), and so its operating margin of 10.55% compares favourably (against 6.61% and 4.24% respectively). The two larger auto manufacturers have also been unable to pay dividends last year. Though its home market is contracting, Tata’s exports stand a good chance of replacing any lost sales. I like this company at this time.