Hartford Financial Services (HIG)
Hartford Financial Services is a leading insurance provider and also offers a wide range of financial products to meet the needs of its broad range of clients. The current volatility prevailing in the US economy has affected many stocks and many are down by 25%-40% or even 50% in some cases especially the financial stocks. Insurance stocks in particular including HIG, Prudential Financial, Inc. (PRU), American International Group Inc (AIG) and Genworth Financial, Inc. (GNW) are trading below the market expectations making them among one of the cheapest sectors in the market at the moment.
The current natural calamity has further put extra pressure as the total number of insurance claims would increase to $5.00 billion according to very conservative estimates. Additionally, HIG’s lower than expected results in the second quarter due to the losses arising from storms has put extra pressure on the stock during the past few weeks.
As of August 29, 2011, HIG is trading at price to earnings multiple of 5.17 which is the lowest among all its major competitors like AIG and MET which are trading at multiples of 7.91 and 13.86 respectively. HIG is also trading well below book value of $45.93 per share. The market consensus estimate for the EPS is $3.04 per share for FY11 with a price estimate of $32.36 in one year time.
The insurance sector in general and HIG in particular seems to be undervalued at the moment and this may have created a buying opportunity for long term investors.
LM Ericsson Telephone Company (ERIC)
LM Ericsson Telephone Company has finally completed the agreement to acquire Telenor Connexion’s M2M technology platform, previously announced in April, 2011. The acquisition will supplement Ericsson to contribute towards M2M communication and allow it to strengthen its grip on the market. ERIC market share has already gone up to 40% in the global telecoms market this year giving a slight blow to its direct competitor Nokia.
However, M2M business offers low revenue per device on average and ERIC will have to aim for high volumes. Hopefully, the massive network of the company worldwide will allow it to do so and will help the company to overcome the relatively low performance witnessed during the second quarter of FY11 due to the earthquake in Japan.
As of August 26, 2011, ERIC stock closed at $10.77 with price appreciation of 2.38%. Despite the number of positives ERIC is trading at a price to earnings multiple of 14.40, lesser than its direct competitor Alcatel-Lucent (ALU) which is trading at 15.57. However, ERIC’s EPS of $0.75 against $0.23 of ALU makes it ahead of its competitor. On the other side of the spectrum, if the corporate debt crisis gets out of control in Europe, the global telecom sector may see forced consolidation in the future. Investors seeking long term exposure in the telecom sectors need to be cautious about the developments in Europe.
Pulte Group, Inc (PHM)
Pulte Group, Inc is engaged in the home building business which includes the acquisition and development of land primarily for residential purposes and financial services businesses primarily in the United States through its subsidiaries. Any news or update on Hurricane Irene is of utmost importance for the home builders and the investors.
PHM holds approximately 22% of share in the storm predicted path and any potential damage could hurt the already struggled profitability of the company. Although PHM share is trading at relatively cheaper price as compared to other companies including NVR (NVR), Toll Brothers (TOL) and Beazer Homes USA (BZH) but still very vulnerable to storm catastrophic damages.
On the other side of the story, its stock closed at $4.48 with price appreciation of 5.66% highest among the competitors and is among one of the biggest gainers in the week. PHM is also included in the list of the companies which are experiencing insider buying for the last six months and net buying of 50k shares has been witnessed in this regard.
Additionally, the stock shows a healthy volume of 21.03 million shares on average during last week along with KB Home (KBH) and Toll Brothers. This is obviously contrasting when compared to the net loss of $55.00 million or $0.15 per share and with analyst’s mean recommendation of only 2.6. Considering the above mentioned facts, it seems investors are hoping that these stocks have already hit their bottom. If this is the case, there could be a chance of increased activity in the coming days too.
SIRIUS XM Radio Inc. (SIRI)
Almost every stock got affected after the recent panic in the market and most shares experienced heavy selling affecting almost every company in the market. SIRI is no exception in this regard. This has no doubt created an opportunity for the investors to start hunting for undervalued stocks in the market. With higher revenues and earnings in the first two quarters of FY11, SIRI is already ahead of FY10 in terms of earnings. It has every chance to be considered in the list of undervalued stocks by the investors.
Additionally, the company is ahead of its competitors when it comes to attracting new subscribers and stands at the top with NetFlix (NFLX) in the industry. Starting from 22 July, 2011, SIRI’s stock lost almost 23.5% of its values and is currently trading at $1.70 with very high price to earnings multiple of 41.46 as compared to industry wide price to earnings multiple of 11.39.
The recent quarter results shows that the company has been able to increase subscribers, retention level also seems to be higher among competitors and more importantly is about to unveil a new product soon. Moreover, the company carries a comparatively low debt levels when compared to its direct competitor Cumulus Media (CMLS) and also offers a better return of equity of 70.40%. The stock seems to be attractive as the stock’s value went down by more than 22% on the one side while it is surrounded by some positive developments on the other.
Ford Motor Company (F)
Ford Motor Company manufactures vehicles and maintains a market cap of $39.52 billion. With an upside potential of 88.17% at year end, the stock is in lime light these days. The company’s earnings are recovering from recession as evident from the positive earnings witnessed in FY09 and FY10. Moreover, the market is expecting the same trend in the ongoing year. It was also among the most heavily traded stocks on Wednesday last week with volume of 50.10 million shares.
Like any other stock, the Ford stock is adversely affected by the heavy selling witnessed during the recent market turmoil due to US debt ceiling issue and sovereign rating downgrade. Starting from May 25, 2011, the stock price went down by 28.66% from $14.58 to $10.40 as of August 26, 2011. The price appreciation was 1.17% at the closing of the last week but it was comparatively weak when compared to major competitors. However, Ford carries stable position in the industry and is in a good position to counter its rivals.
The operating margin of the company is 6.61% and its better when compared to 4.24% of General Motors (GM). However, long term investors needs to be cautious as the company is still highly leveraged and could face difficulties in the long run.