The recent sell off has put a number of great stocks on sale. Ranging from energy to automotive, these five stocks appear deeply undervalued on a price to cash flow basis and look likely to recover in 2012 based upon my analysis.
Cloud Peak Energy Inc. (CLD) is leading coal mining company in the Powder River Basin region (which provides 40% of all coal to the US), operating 4 surface coal mines in with 3 of them wholly owned, and 50% non-operating stake in another, primarily focusing on the production of high quality, low sulfur sub-bituminous coal. The stock is currently trading at $20.20 within a 52 week band of $24.69- $15.91
With a market capitalization of $1.2 billion versus an enterprise value of a whopping $1.8 billion, CLD trades with a comparatively miniscule low price earnings multiple of 9.76, compared to the industry average of 30.12 times. Despite a slightly low quarterly growth of 13.50%, as compared to its competitors such as Arch Coal (ACI) and Peabody Energy Corp (BTU), which reported an increase of 28% and 21%, CLD reported an operating margin of 16%, well ahead of its peers and well above the industry average.
Ford Motor Co (F) is the second largest automobile manufacture in the US, selling cars and trucks through 12,000 dealerships worldwide under two primary brand names – Ford and Lincoln. Ford operates primarily two segments- Automotive and Financial services, with the latter contributing 5.7%, down from the previous year at 7.13%.
Due to a general slump in automobile demand from developed markets, Ford’s debt to equity ratio is quite substantial at 1,856. However, North America sales jumped 15% from last year, in line with every other geographic segment. The price earnings multiple of 6.90 is below the industry average of 7.99, the stock is being traded at $11.56, lower side of its 52 week range of $18.97-$9.05, making Ford a bargain considering return on equity of 786% and an EPS growth of 92.86% on a year on year basis.
First American Financial Corporation (FAF) is one of the oldest insurance providers in the US, operating and providing services in 49 states through its two business segments - Title Insurance and Specialty Insurance. FAF has one of the largest agent networks in the US. The company has a market capitalization of $1.68 billion and a last traded price of $12.88, reporting a net income of $32 million for the most recent quarter, compared to the substantial loss of $15.3 million in the previous quarter, sequentially.
A price earnings multiple of 14.14 times, far lower than the industry average of 128.35, makes the stock slightly less of a bargain than the competition, say Fidelity National Financial (FNF) with a multiple of 10 times. Recession in the real estate market has pushed the price down to near 52 week lows ($11.76), with the last trade at $12.88. The interest coverage of over 85 times is well placed to serve the near 14% debt to equity. However, the dividend payout of 25.64% and dividend yield of 1.86 could do a little better.
USG Corporation (USG) is a leader in the manufacturing of building materials, and a leading producer of gypsum products, with experience of over 100 years in the industry. Operating in three key segments- American gypsum, building material division, and worldwide ceilings, the gypsum division contributes nearly half the net sales, thereby making it the most important one. Having taken a beating in the sub-prime crisis that nearly demolished the construction market, the stock is still better off than competitors such as Vulcan Materials (VMC), and Cemex (CX).
At the current pricing level of $8.42, the stock is just near the bottom of the 52 week range of $19.91-$5.75, with a market capitalization of $830 million. One may expect some consolidation in the market to gain competitive advantages, particularly if the depression continues. As such, USG could be one of the more obvious targets, having substantially reduced operating losses over the last 3 quarters by 77%.
Johnson & Johnson (JNJ) is one of the best known consumer health companies in the world; a worldwide leader in a portfolio of diversified healthcare products ranging from pharmaceuticals to baby care. A virtual household name across the globe JNJ owns many famous brands such as Clean &Clear, Neutrogena, Listerine, Band-aid, and many others. The stock leads the industry in dividend payout 51.70% and yield of 3.52, with a well below industry par price earnings multiple of only 15 times.
JNJ with a market capitalization of $176.01 billion is well ahead of major competitors such as Pfizer (PFE), in terms of net margin at 18% versus 12%, not to mention return on assets of 11.36% and return on equity of 20.20%, both of which are well ahead of industry averages. The dividend payout of 51% is rock solid with a yield of 3.52%, compared to just 2.8 for the industry. I believe it’s one of the best pharma bets with a diversified healthcare portfolio, less likely to be affected by patent expiration.