By Michael Sarid
Though many of us expected to be in a thriving economy by this time since the 2008 financial crisis, there is no denying that double-dip fears still loom. Contagion in Europe appears to still be concerning investors and U.S. household income sliding to 1996 levels didn’t help market confidence either. Here we evaluate six stocks to see if they can shake the uncertainty and thrive in this economy.
AT&T Inc. (T) – AT&T, one of the world’s leading mobile service providers, is trading at $28.38 with a market capitalization of $167.71 billion at last check. The stock is currently yielding $1.72 or (6.00%) which almost doubles the S&P 500 average at 2.25%. The price to earnings growth of the last year is fairly high, at 1.9779, but its price to earnings ratio, 8.439, is still below the Communications Service industry of 12.14. AT&T’s profitability makes it one of the more lucrative companies out of its competitors, with a net profit margin of 16.24%. The return on equity in the most recent quarter exceeded a year prior and beats both the industry and S&P 500 average. Still, the telecom giant may have trouble covering short-term liquidity needs with its quick ratio at 0.66.
AT&T’s stock price has fallen -1.01% in the past 52 weeks, compared to the S&P at 2.86%. Since plummeting to its annual low for the second time since early August, the stock has shown a very strong bounce, rallying 5.4% in four trading days. Resistance is sitting at $29.87, not leaving the stock much upside. AT&T’s stock has much to gain from its proposed acquisition of T-Mobile, however the Justice Department said last Friday that seven more states have joined the antitrust lawsuit that blocks AT&T’s aimed $39 billion acquisition of T-Mobile USA. A great deal lies in the decision of this lawsuit, but with the way states have been fighting it, it seems as though AT&T will not be able to get this deal through. Because of resistance being close by and the T-Mobile USA acquisition appearing less and less likely, I have T as a hold. Look for the stock to remain in the 28-29 range for now.
Altria Group, Inc. (MO) – Altria, the tobacco giant, has a market capitalization of $54.10 billion and last traded at $26.12. It is currently distributing a dividend at 6.10% of the stock price — $1.64. This beats competitor Reynolds American Inc. (RAI), who distributes 5.60% in its dividends. The stock has the one of the highest price to earnings growth ratio in the Tobacco industry at 1.65. The price to earnings, though, is at 16.39 and is slightly above the average. Altria is one of the more profitable companies among its peers, gaining a net profit margin of 20.74%. MO has beat the S&P in the last 52 weeks, with a price increase of 9.43%
Barring Altria’s extreme volatility in early August, the stock shows solid growth in the last year. MO tested the 50% Fibonacci and has since bounced back all the way to the 23.6% mark. This is a strong indicator that investors are confident in this stock and that future growth is likely. More recently, MO has stagnated around $27.08 but it is now ready to break a new high. Altria is a great company — it has consistently paid quarterly dividends for decades and is yielding solid earnings per share. I have MO as a buy because of its positive chart patterns and its profitability. Look to jump in anywhere under $27.
Microsoft Corp (MSFT) – This software giant is trading at $25.99 with a hefty market capitalization of $217.75 billion. Microsoft is one of the few companies in its industry that declare dividends, with its current dividend rate being $0.64 or 2.40%. The price to earnings ratio, at 9.96, has Microsoft as one of the most discounted buys when compared to competitors such as Apple, Inc. (AAPL) or Google Inc. (GOOG) at 16.15 and 19.45, respectively. Both net and operating profit margin rank Microsoft one of the highest in the Software & Programming industry. Additionally, the company has handled its debt levels very well, boasting a debt to equity ratio of 0.21. The stock is trading evenly between its 52-week extremes, with its high at $29.46 and its low at $23.65.
Microsoft has benefited from positive press stemming from its IT infrastructure for enterprise and personal use. First, numerous financial services companies have applauded Microsoft’s mission-critical operational efficiency, further pointing to the company’s ability to tend to corporate needs. Additionally, external developers have praised the first release of the Windows 8 operating system, the hybrid desktop-tablet software scheduled for release next fall.
From late-July to mid-August, Microsoft’s stock dropped 14.2% and traded below its lower Bollinger band for six consecutive days during that period. Since then however, the stock has rallied back 11.7%. I like that MSFT avoided sinking past its yearly low. Also, the fact that it was able to sustain its most recent rally past previous resistance is a positive signal. Time and time again, Microsoft has been a safe bet for investors. I don’t think there’s anything should make us think any differently. Though we may have missed the beginning of the climb, look for Microsoft to break its yearly high before long.
Intel Corporation (INTC) – Another tech super power, Intel is trading at $21.94 with its market capitalization at $115.21 billion. Its dividend is in line with the Semiconductors industry average, yielding $0.84 or 3.80%. Its price to earnings ratio, 10.20, is near the industry median of 11.23. Still, this makes Intel out to be a better deal than competitors such as Oracle Corp. (ORCL) and Cisco Systems, Inc. (CSCO), with respective P/E ratios of 17.33 and 14.15. While Intel has been able to turn above-average profits, its debt-to-equity, at 0.04, further points to its financial strength. Intel dwarfs the S&P’s performance in the past 52 weeks, increasing 15.41%. Earnings momentum has been positive the past five quarters, jumping from $1.99 to $2.35.
With such sound fundamentals, Intel’s chart illustrates a different story. The stock just recently tested its yearly low of $18.75. Over this time, the stock has shown promising rallies followed by substantial sell-offs. From mid-April into May, INTC jumped 17.2%, only to retrace completely back just a couple months later. Considering this stock is on a rally right now, it may not be the best time to accumulate shares. The stock has been outside of its upper Bollinger band for the past five trading days. Additionally, resistance is close by at $22.65. If you’re already invested, hold tight while collecting those dividend checks. I’m holding Intel.
The Hershey Company (HSY) – Hershey, the chocolate manufacturer known nationwide, is trading at $58.83 with a market capitalization of $13.48 billion. The stock pays a dividend of $1.38 (2.30%), a benefit that many other stocks in the Food Processing industry do not provide. Hershey’s price to earnings ratio of 22.52 has the stock a bit overvalued with the industry median at 12.18. The company has increased its bottom line due in large part to its improvements in the management of its supply chain. This upgrade led to a 7.5% increase in sales last quarter, along with earnings per share growth of 10%.
Hershey’s technical chart looks very strong in the last 52 weeks. From February 2010 to July of the same year, the stock had a stable climb before forming support for several months thereafter. The movement HSY is now making mirrors its last substantial rally — it climbed 21.3% from last December to last May. Since then, HSY has been creating support at $56.15 and has already broken the previous high. Additionally, both the 50 and 200 day moving average are rising which is always a good sign. If you are worried about severe market swings, look no further than Hershey, with its beta at 0.31. Hershey’s increase in sales, coupled with its promising technical chart makes this stock a strong buy. Get in this stock before it starts its next rise.
Kraft Foods, Inc. (KFT) – Kraft is trading at $34.13 at last check with a market capitalization at $60.28 billion. Its dividend yields $1.16 (3.30%) currently, which parallels most of its peers. The price to equity, at 19.50, is fairly higher than the Food Processing industry median of 12.12. At 5.89%, Kraft’s profitability has been slightly below average, with competitors averaging at 8.23%. Nonetheless, net operating cash flow flew 63.52% last quarter compared year over year. Also, the 52-week price growth of 9.15% beats the S&P 500’s at 2.86% pretty handily. Right now, the stock is just below its yearly high at $36.30 met back on August 4th.
After rising 16.7% from December to July, Kraft has stalled around the $33.80 mark. While the 50-day moving average is downward sloping, the 200-day remains bullish. After trading at or below the bottom Bollinger for 10 days in August, the stock has bounced from the upper to lower range since. Historically, looking back to March 2010, the stock appeared to top out and then remain in that relative price region for 6 months thereafter. Now, it appears that Kraft has just started that process, which makes me weary about whether the stock will go anywhere. From the P/E ratio to the profit margins to the chart trends Kraft is showing, nothing makes me want to put my money in. I have Kraft as a hold.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.