The markets have been in turmoil and the recent correction has created some great buying opportunities in even the most stable and largest companies. While it is far more common for small- and mid-cap stocks to double in a year or two, valuations with some large-cap stocks are at levels that make it possible for a double in certain stocks. There are three key factors that could cause these stocks to double in price in the next couple of years.
- Market stability and more normalized levels of fear in the stock market. Currently, many investors are ready to panic and hit the sell button due to recent memories of the financial crisis and stock market collapse that took the Dow index to about 6,500. Many investors would rather step aside than revisit that type of event. A year or two from now, investors might not be as willing to sell cheap stocks over a negative headline.
- The economy and the unemployment rate need to improve. In time, the unemployment rate should improve and more jobs will mean the American consumer and economy is stronger. This can ultimately lead to higher corporate profits and also more people working will lead to more money being invested in 401(k) and other retirement plans.
- Valuations are very low now and price to earnings multiples could expand in the next couple of years. Higher price to earnings multiples will be warranted when investors feel more confident in the economy and with increased demand for stocks due to more people working.
With the right policy moves from Washington and in the absence of any major disasters or "Black Swan" type events, the factors above could converge in the next year or two and that could cause these large-cap stocks to double.
Intel Corporation (INTC) is a leading maker of chips used in notebooks, netbooks, desktops, mobile phones, consumer electronics devices, etc. This company has a rock solid balance sheet, sells for only about 8 times earnings and pays a dividend that beats most bonds and other income investments. If Intel management can boost growth, the price to earnings multiple of this tech giant could move much higher.
- Current share price: $20.24
- The 52-week range is $17.60 to $23.96
- Earnings estimates for 2011: $2.38 per share
- Earnings estimates for 2012: $2.50 per share
- PE Ratio: about 8
- Annual dividend: 84 cents per share which yields 4.2%
Microsoft Corporation (MSFT) is a leading maker of computer software and hardware products as well as consumer products like the Xbox. Microsoft has a huge cash position on MSFT's balance sheet. The stock pays a strong dividend and trades for just about 8 times earnings. Some believe Microsoft will increase the dividend and that could help boost the stock price. It would only take a price to earnings multiple of about 16 to make this stock double.
- Current share price: $25.80
- The 52-week range is $23.32 to $29.46
- Earnings estimates for 2011: $2.87 per share
- Earnings estimates for 2012: $3.18 per share
- PE Ratio: about 8
- Annual dividend: 64 cents per share which yields 2.5%
Bank of America (BAC) is a banking and financial services giant. This bank is facing challenges with mortgages and foreclosures and the stock has recently sold off on concerns of a double dip. But, many smart investors like Donald J. Trump are buying shares at what looks to be bargain levels. With bank stocks trading below book value in many cases, and the sentiment so negative, this could be the classic buy low opportunity. In a recent CNBC article, Doug Kass of Seabreeze Partners states, "I'm also making a medium term call. I think banks stocks can almost double within the next 12 months."
- Current share price: $8.09
- The 52-week range is $6.31 to $15.31
- Earnings estimates for 2011: loss of 25 cents per share
- Earnings estimates for 2012: profit of $1.51 per share
- PE Ratio: about 5.5 times 2012 earnings
- Annual dividend: 4 cents per share which yields 0.5%
Hewlett Packard (HPQ) is a leading technology company with an extremely diverse range of products and services which include printers, computers, tablets, software, consulting and other business solutions. This stock has been in a downtrend and hit a new 52-week low recently. Now HPQ is trading at a price to earnings ratio of about 5. If management was able to restore confidence and the price to earnings multiple only went to a very reasonable level of 10, this stock could double.
- Current share price: $26.05
- The 52-week range is $22.75 to $49.39
- Earnings estimates for 2011: $4.84 per share
- Earnings estimates for 2012: $4.87 per share
- PE Ratio: about 5
- Annual dividend: 48 cents per share which yields 1.9%
Cisco Systems, Inc. (CSCO) is a leading networking hardware company. This company was once one of the darlings of the Internet stock world, and traded at rich multiples of over 40 times earnings. Goldman Sachs sees new hope for Cisco shares and recently upgraded the stock to a buy from neutral, setting a $21 price target. The Goldman analyst believes tthat Cisco is "at the beginning of a multi-quarter upward estimate revision cycle.” and that estimates are too low.
- Current share price: $15.63
- The 52-week range is $13.30 to $24.60
- Earnings estimates for 2011: $1.72 per share
- Earnings estimates for 2012: $1.90 per share
- PE Ratio: about 8
- Annual dividend: 24 cents per share which yields 1.6%