The stocks in this analysis hover around their 52-week lows and offer monster dividend yields. Please use the analysis below as a starting point for your own due diligence:
Banco Bilbao Viscaya Argentaria (BBVA): The stock trades at 5.3 times its trailing twelve months (ttm) earnings, cheaper than Banco Santander (STD) at 7.4. The stock comes with an attractive dividend yield of 6%.
The stock outpaced the market until July and has taken a beating since, falling over 37% as the market sold off bank stocks. It’s priced around $7.56, about 7.7% above its 52-week low of $7.02.
Net profit for the second quarter dropped 7.6% on a weak showing from its home market. The bank held about EUR100 million ($137 million) in Greek sovereign debt at the end of March. Banco Bilbao topped the list when stress tests were held in July by the European Banking Authority.
According to the report, “BBVA's Tier 1 core capital ratio would increase to 9.2% in the most adverse scenario for 2012. Adding shares created this month and incorporating generic provisions, the ratio rises to 10.2%.”
As a result, Banco Bilbao should navigate the European debt crises in a better fashion than its European peers.
Investors should weigh two factors before committing funds: the bank’s core business of lower risk retail banking versus a weak outlook for its home market where it has a significant presence.
Annaly Capital Management (NLY): The stock trades around $17.90, about 27% above its 52-week low. It trades at 6.7 times its trailing twelve months (ttm) earnings, a bargain considering Impac Mortgage Holdings (IMH) trades at 34.6 (ttm). The dividend yield s at 14.6%, very enticing indeed. The stock lagged the market until August and has about broken even for the year to date.
The low interest environment is a blessing for Annaly as shown by the solid earnings for the first half of the year. This should continue for the rest of year and 2012 since the Federal Reserve will not jack up interests given the dire economic situation.
To complement its mortgage security portfolio, Annaly earns investment fees from its fixed income holdings which have been growing steadily. For 2011, investment fees should total about $ 75 million.
Annaly should report solid third and fourth quarter results. A dividend hike is a possibility that can’t be ignored as well.
Seadrill Limited (SDRL): The stock is down about 10% for the year and trades around 21% above its 52-week low. It trades at 6.6 times its trailing twelve month earnings, paying a dividend of $2.16 or a 7% yield, which is far cheaper than Ensco plc (ESV) at 16.9 and Noble Corp (NE) at 29.4.
Earnings visibility for Seadrill is strong with management indicating healthy demand for its equipment. The company has established its leadership position in its market and has a great reputation amongst its clients.
Seadrill expects its annual EBITDA to grow about $3 billion which, in its view is realistic given strong order book and sound market fundamentals. The balance sheet is healthy with a debt/equity ratio of 1.3. The current valuation, sound fundamentals and good earnings to support the dividend make this stock a worthwhile holding for the near term.
Invesco Mortgage Capital (IVR): The stock has fallen over 25% for the year, currently trading about 3% above its 52-week low.
The stock pays a monster dividend of $3.20 or a 19.5% yield. It trades at about 4 times its trailing twelve months (ttm) earnings, making it the cheapest amongst its rivals, Annaly at 6.6 (ttm) and Capstead Mortgage (CMO) at 8.17 (ttm)
Second quarter results beat Wall Street’s estimations as profit margins doubled. The stock fell sharply as investors were unnerved over concerns of the impact of the US debt downgrade on the value of the assets in the company’s portfolio.
For 2011, the company has issued over 61 million shares. This is a double-edged sword because the debt load will be reduced somewhat while diluting its earnings per share base. The fall in its book value is hurting sentiment against the stock. Management attributed the decline to a decrease in interest rate swaps.
The recent 20 million equity offering will be used to fund purchases for mortgage backed securities and help in shoring up the book value.
Nokia Corp. (NOK): The stock has taken a hammering, falling about 30% for the year, significantly underperforming the market.
It trades around $5.87, just shy of its 52-week low of $5.81 and 13 times its trailing twelve months earnings (ttm), on par with Ericsson (ERIC) at 13.9. Dividend yield is currently 8.1%.
The fall in the share price reflects investors’ concerns over Nokia’s deteriorating market share to Apple (AAPL) and phones using Google’s (GOOG) Android operating system. Second-quarter results was lackluster- net sales dropped 7% with non IFRS operating profit slumping 41%. Net sales for devices fell 20% and volumes for mobile and smartphones declined 20% and 34% respectively.
The company is pinning its hopes on the joint venture with Microsoft (MSFT) to gain lost ground. Only time will tell how this works out. The dividend yield is tempting, investors considering this stock should bear in mind the state of the underlying business, which looks cloudy at the moment.