Investors can get into the market affordably by focusing on lower-priced, quality stocks. I will look at four stocks under $40 that specifically: (1) have worldwide reach as indicated by where the company derives sales, (2) sell at price-to-earnings ratios below their industry averages; and (3) have positive expected earnings and positive earnings growth for fiscal year 2012. Additionally, all of these names anticipate an improvement in their cash positions in the next fiscal year, which improves the balance sheet on the whole. This opens the door to an improved credit rating and lower debt-to-assets ratios, and, for those names that pay dividends, a dividend increase. These are the four names with per diem volume over 100,000 shares per day that made the cut:
Vodafone Group, PLC (VOD)
VOD is trading around $29, well within its 52-week range of $29.75 to $24.31. Its market capitalization is nearly $148 billion, and it has a healthy dividend of $1.92 for a yield of 6.9%.
VOD is the Western world's largest wireless carrier, and has operations on six continents. It is best known in this country as the 45% minority owner of Verizon Wireless, but by far, most of its revenues are generated outside the U.S. While it faces competition from the likes of AT&T (T) and Sprint Nextel (S), VOD is in a quite different league than its North American competition, and that breadth evens out VOD's risk and enhances economies of scale. Also, Verizon Wireless is expected to make a one-time dividend payment to its shareholders of several billion dollars in early 2012.
Given its enormous size and scope, as well as its extremely low beta, VOD is highly suitable to conservative or income-oriented investors. One caution to income investors is unlike most U.S. Companies, VOD shareholders are paid irregular dividend amounts.
Silver Wheaton Corp (SLW)
SLW is trading at the time of this writing at $35, within its 52-week range of $47.60 to $25.84. Its market capitalization is $12.35 billion, and its current dividend of $0.12 gives it a yield of just 0.40%.
SLW is a Canadian precious metals supplier, with silver being its largest revenue source. Unlike mining companies such as Barrick Gold (ABX), SLW simply buys stream rights at a fixed cost, making the only variable in its business the actual price of the metals. In full-year 2010, it posted $423 million in revenue, and recorded $290 million in net profit, for a profit margin of an astounding 69%. Growth continues in 2011, as for the first six months of the year, SLW posted revenue of $353 million, and net profits of $270 million, increasing the profit margin to 76%.
SLW is an excellent bet on future price increases in silver. However, if worldwide demand for silver slackens, SLW has no shelter.
Sirius XM Radio, Inc (SIRI)
SIRI is trading at the time of this writing at $1.8 per share, within its 52-week range of $2.44 to $1.27. Its P/E ratio is 44.63. It does not pay a dividend, and its current market capitalization is $6.86 billion.
SIRI's well-known business involves subscription radio. It therefore faces competition from free radio, Pandora Media (P), and ubiquitous MP3 players. More troubling is the potential of future competition from Google (GOOG) and Apple, Inc (APPL).
SIRI was teetering near bankruptcy in 2009, and was bailed out by a $500 million investment from John Malone, in return for a 40% equity position in the company.
Given its already heady P/E ratio, the finances and history of SIRI, I cannot see making a long-term commitment in it. There are too many variables, both known and unknown.
CVS Caremark Corp (CVS)
CVS is trading around $37 per share, near the high end of its 52-week range of $39.50 to $29.45. It has a market capitalization of nearly $50 billion, and is paying an annual dividend of 0.50, for a yield of 1.4%.
CVS is both a leading drug store chain and a leading pharmacy services provider. This diversification smoothes out cash flow and earnings, leading to its low beta. With a trailing P/E ratio of 15, and a forward P/E of 11, there is room for further share price growth. Its return on assets, 5.96%, is solid for a retail concern.
Due to previous acquisitions, CVS still carries a heavy long-term debt burden of over $11 billion. Servicing that debt will make it hard to raise the dividend, and growth of that dividend is likely to trail competitors such as Walgreens (WAG). So too will future growth through acquisitions be hindered by that debt load.
CVS is well-positioned to take advantage of Washington's health care reform efforts. Its focus on individualized primary care and higher-margin pharmaceuticals sets it up well for the long term. Growth and value investors should take a long look at this one.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.