With the markets acting erratic, investors have been bailing even on great companies. There are good companies out there that may have bottomed. It may be the right time for investors to start jumping back in. The following five companies that have a great risk-reward ratio and you should consider them as potential investments.
- BP provides fuel for transportation, energy for heat and light, retail services, and petrochemicals products. The future of BP's Deepwater Horizon spill is largely unknown. Although lawsuits and regulation will continue to happen, the company is ready to get back on its feet again. Uncertainty has caused the valuation to remain low. The stock has a forward P/E of 5.3 and pays a 4.7% dividend. There is plenty of room for growth for the dividend as well.
- Wells Fargo & Company (WFC), through its subsidiaries, provides retail, commercial, and corporate banking services primarily in the United States. Wells Fargo is one of the better banks. The company is less leveraged than its peers such as Bank of America (BAC). They have much more liquidity and their balance sheet is much stronger. Not to mention, Warren Buffett has been buying plenty of shares for a long time now. The stock trades at a forward P/E of 7.3 and pays a 2% dividend.
- EMC Corporation (EMC) develops, delivers, and supports the information and virtual infrastructure technologies and solutions. Cloud computing is set to see exponential growth over the coming years. Companies have a large pile of data and it is becoming harder and more expensive to store it. EMC is an industry that provides solutions to these companies and hosts their files on servers with multiple access routes. This industry is growing and will be the future of storage. EMC also holds a large stake in Vmware. The stock has a forward P/E of 12.5.
- Paychex, Inc. (PAYX) provides payroll, human resource, and benefits outsourcing solutions for small to medium sized businesses. As companies look to cut cost, they will need solutions to help them manage their employees. Paychex is an industry leader in this. The company not only has a rock solid balance sheet, but also pays a nice dividend of 4.7%. The stock has a forward P/E of 16.
- Northrop Grumman Corporation (NOC) provides products, services, and solutions in aerospace, electronics, information systems, shipbuilding, and technical service sectors. Defense contractors have been in disarray as the government seeks to cut its defense budget in order to balance the budget. Northrop is one of the largest and is already being priced for the possible cuts. The nice thing about Northrop is that they will be getting plenty of deals with countries such as India, which seek to improve their armed forces. Northrop trades at a forward P/E of 7.3 and pays a 3.8%.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.