Today we took a look at some beaten down stocks that look ready to move higher in the year ahead. Let's see if these stocks will surge higher. As always use the list below as a starting point for your own research.
SIRIUS XM Radio Inc. (SIRI)
Sirius XM Radio Inc. offers satellite radio services to its client all across the United States and Canada. After the last month’s panic in the market, the investors are now hunting for undervalued stocks in the market. Almost every stock got affected and most of the shares experienced heavy selling affecting almost every company in the market. SIRI is no exception in this regard.
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 a list of undervalued stocks by investors. Additionally, the company is ahead of its competitors when it comes to attracting new subscribers and stands at the top with Netflix in the industry. The stock has lost nearly 25% of its value in the last fifty days. 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 as compared to its direct competitor Cumulus Media and also offers a better return on equity of 70.40%. The stock is worth keeping an eye on 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.
Cisco Systems Inc. (CSCO)
CSCO is believed to be among the stocks which have finally bottomed out these days. Earlier in September news outlets announced the finding of new evidence against CSCO that it has helped the government of China in monitoring, screening, and arresting of affiliated members who belong to banned Falun Gong organization.
CSCO is already being sued by the Human Rights Law Foundation on charges of violation of human rights abroad. The stock still performed well against its peers including Juniper Networks Inc (JNPR) and Hewlett-Packard Company which fell by 4.45% and 5.18% respectively on that day. The operating margin of 20.04% of CSCO is well above its competitors as well as the industry average. However, this is not true when the quarterly revenues growth is taken into account where CSCO is below its competitor JNPR.
Investors are expected to remain cautious as the stock might face pressure in the coming days due to the recent news of new evidence which may translate into damages later.
Research in Motion Limited (RIMM)
Research in Motion is in the business of designing, manufacturing, and selling wireless product solutions, including its flagship Blackberry. Any prudent or long term investor should keep ane eye on RIMM. The company continues to generate solid growth regardless of what competitors are doing. The Blackberry smart phone has one of the most outstanding records of earnings growth ever created.
However, RIMM is facing tough competition from Apple's (AAPL) iPhone and Google's (GOOG) Android. If RIMM's numbers are applied to any other company in any other industry, the stock might be trading more than two times of the current value. The company is operating with zero debt and is generating extremely healthy cash flows. The returns on equity and capital are both above 25% per annum and expected to continue to grow in the future.
The story is entirely different when one looks at the stock market position. Further, the stock is trading at low price to earnings multiple of 4.78 at the moment.The recent sell off in shares makes no sense when one looks at the strong fundamentals of the company. RIMM looks a very good buy at current levels.
USG Corporation Common Stock (USG)
The company was hit hard from the weak home prices and the construction slow down since the recession. USG's main exposure is from residential construction and the market has been terrible for years now. The company announced that the FY11 would be another difficult year and it is true from the continuing revenues contraction and net losses.
Other companies that depend on the construction industry insulation maker Owens Corning (OC) and cement makers Vulcan Materials (VMC) and Cemex (CX) are also struggling. The situation is same for the other competitors of USG including CertainTeed Corporation and New NGC Inc. In addition to that, margins of most general building material suppliers are also pressured by rising commodity costs.
However, the recently released Home Price Index from April 2011 to June 2011 has shown some signs of recovery. Housing prices have recovered from their first-quarter low, but they are still below the second-quarter prices of FY10. They are climbing for the three straight months to finish the quarter up 3.6% above the first quarter showing that the housing market was slowly but steadily recovering.
Considering the above mentioned facts, the stock is still feeling the heat. Moving forward, as the housing downturn continues building material suppliers with more diversified business will be able to grow revenues out of some segments.
Deutsche Bank AG Common Stock (DB)
The banking sector being the prime source of economic turmoil hit really hard after the initiation of the financial crisis and the recent developments indicate that the trend will continue in the near future. The market reacted severely after the Federal Housing Finance Agency filed a suit against the 17 biggest banks alleging that they misrepresented mortgages that were included in securities they sold to Fannie and Freddie.
So far the list includes Bank of America (BAC), JP Morgan Chase (JPM), Goldman Sachs (GS), and Deutsche Bank (DB). This will surely be a major setback for the already struggling bank stocks and the uncertainty is expected to continue in the market in the coming days. Moreover, DB is also facing problems due to the debt crisis in Europe. The International Accounting Standards Board claims that many banks have not correctly written down the value of Greek debt that they hold.
The stock is looking cheap at a price to sales ratio of 0.83 when compared to its peers. It is 1.39 for Citigroup (C), 1.08 for Commerzbank (CRZBY.PK) and 1.49 for UBS. Operating margin and price to earnings ratio are about average.
The bank’s recent cash flow problems arise due to changes in working capital. The stock is offering dividends with yield of 2.18% but a cautious stance is recommended to investors.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.