Let's take a look at five stocks that are selling at price-to-earnings ratios below their industry averages. Specifically, I am interested in those that yield 3% or more so that dividend investors can get ample yield going forward. Each of these five names is cheap on a valuation basis (and therefore on sale), and, with the exception of Whirlpool (WHR), each one has a catalyst that is enough of a reason to buy now.
JPMorgan Chase (JPM)
By nearly every measure, JPM is the crème de la crème of the large money center banks. At the time of this writing, JPM is trading on the NYSE at $37, near the midpoint of its 52-week range of $48.36 to $27.85. Its market capitalization is $141.5 billion, and its current P/E ratio is roughly 8. JPM slashed its dividend in the 2009 banking crisis to just $0.05 per quarter. It has since been raised to $0.25 per quarter, giving it an annual yield of 3.0%.
JPM's managements team has adroitly managed it. So too has JPM's reach across retail banking, credit cards, and investment banking helped to even out earnings, even though the past several years have seen the failure of several of JPM's peers. Even in the horrid environment for most banks in 2010, JPM's return on assets was 0.82%, and its earnings, despite a somewhat disappointing third quarter, may actually set an all time record for JPM in 2011. For comparison's sake, Bank of America (BAC) lost money in 2010, and Citigroup (C) posted a 0.55% return on assets in 2010.
With manageable debt, tremendous earnings power, and a likelihood of further dividend increases, JPM may be a winning play for many income and value investors.
WHR is currently trading on the NYSE at $53, toward the lower end of its 52-week range of $92.28 to $47.35. Its market capitalization is $4.04 billion. Its current annual dividend was raised from $1.72 to $2.00 in the second quarter of 2011. The dividend yield is 3.5%.
On October 28, 2011, WHR announced 5,000 job cuts worldwide, and lowered its earnings guidance for the year by 35%. The stock price quoted above reflects the over 10% drop in the share price following the announcement. WHR cites macro economic factors, including continuing sluggish new housing markets in Europe and the U.S. In addition, WHR is dealing with higher raw materials cost, sovereign debt crises, and some uncertainty over tax credits.
While there is little doubt that WHR will withstand the current environment and may make for an excellent long-term play, the smarter course for now is to wait for the recent news to digest and revisit the issue in a few months.
Ashford Hospitality Trust, Inc (AHT)
AHT is currently trading on the NYSE around $9, in the middle of its 52-week range of $14.32 to $5.93. Its market capitalization is $596.6 million. It is currently paying an annual dividend of $0.40 per share, for a current yield of 4.9%. P/E ratio's are irrelevant, as AHT did not post a profit in 2010.
AHT's business in investing in and managing upper-end hotel and resort properties. Current economic conditions in the U.S. have obviously squeezed these types of properties, resulting in AHT's economic situation the past eighteen months.
A bet on AHT is a bet on improved performance at well-known hotel and resort properties in the United States. It is hard for me to see the case for making this investment at this time. This is hardly an indictment, as its leading competitors, such as Host Hotels and Resorts, Inc. (HST) and Felcor Lodging Trust, Inc (FCH), are in similar financial situations.
Medtronic, Inc (MDT)
MDT is trading on the NYSE at the time of this writing at $35.45 per share, near the lower end of its 52-week range of $43.33 to $30.18. It has a current dividend of $0.97 per share, for a yield of 3%. The dividend has been raised annually in recent years. Its current trailing price/earnings ratio is 12.25. Its market capitalization is just over $37 billion.
MDT is a leading maker of medical devices. It faces increasing competition from the likes of Abbott Laboratories (ABT) and Johnson and Johnson (JNJ). MDT took a hit this week when an FDA panel did not approve MDT's new heart catheter. However, MDT has many other new projects in its pipeline, and recently acquired two niche medical equipment makers that it will integrate into its platform. With a clean balance sheet and a minimal debt load, MDT has a bright future.
MDT is an excellent overall play on emerging technologies in health care. It is not a drug company; it focuses, successfully and worldwide, on therapeutic medical equipment. With an aging population both in this country and worldwide, MDT's growth prospects are excellent. It merits full attention of those with a long-term time horizon.
BlackRock, Inc (BLK)
BLK is, at the time of this writing, trading on the NYSE at $169.64, near the midpoint of its 52-week range of $209.77 to $137. Its market capitalization is just over $30 billion, and its trailing PE ratio is 12.1. It has raised its dividend several times in the past five years, and is currently paying double what it was in 2007. The current annual payout is $5.50 per share, for a dividend yield of 3.70%.
There is ample competition in BLK's industry of investment management, and in the United States these include Legg Mason, Inc. (LM) and State Street Corp. (STT), along with integrated banks/investment houses such as JPMorgan Chase (JPM).
BLK has a solid balance sheet, and managed to withstand well the considerable hurdles that all financial concerns dealt with these past two and a half years. However, there is future risk with sovereign debt at home and abroad and other related issues BLK must weather. For those individuals confident about future equities markets in general, BLK is a great play for both income and growth.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.