We have been observing significant volatility and sharp declines in the stock market since this spring. This is scaring away investors and is behind the low PE ratios in the market. We are conservative, contrarian investors. We think this is a good time to be in the market for the long run. So which stocks should we invest in?
Analyst recommendations can be a first step to determining if a stock is worth risking your hard-earned money. At any given time, there are thousands of stocks being recommended, and each for different reasons. The ones on this list have dividend yields over 3%, a low forward P/E ratio (less than 15) and a larger market cap (over $10B). They also share another characteristic in common - each has a current ratio and a quick ratio over 1.0.
The current ratio indicates the company's ability to meet short term debt and other obligations - the higher, the better. A value over 1 means its current assets are worth at least as much as its current liabilities. The quick ratio, or acid test, is much the same only current inventories are subtracted from the company's current assets before looking at its current liabilities in proportion. Again, the higher the better. The target for this metric will vary considerably between industries but, for the most part, a quick ratio of at least 1 is acceptable.
- DuPont de Nemours and Co (DD) is a major diversified chemicals company based in the US. It has a $46.02B market cap and a forward P/E ratio of 11.45. DD offers a 3.29% dividend yield. It has a current ratio of 1.65 and a quick ratio of 1.09. So far this quarter, DD has returned 12.13%. It has a beta of 1.46 and recently traded at $48.37. Phill Gross and Robert Atchinson's Adage Capital Management is a fan of DD. Recently we analyzed 3M's recent financial results and compared it with DD. DuPont is a good stock pick for investors looking for a moderate to high dividend yield. However, MMM is slightly a better investment because it is expected to grow its earnings faster than DD (12.3% vs. 8.8%).
- Exelon Corporation (EXC) is a diversified utilities company based in the US. It has a $30.02B market cap and a 14.96 forward P/E ratio. The company pays a 4.63% dividend yield. It has a current ratio of 1.26 and a quick ratio of 1.09. So far this quarter, EXC has returned 13.89%. It has a beta of 0.59 and recently traded at $45.21. Steve Cohen's SAC Capital Advisors likes EXC.
- Nucor Corporation (NUE) is a steel and iron company based in the US. It has a $12.51B market cap and a forward P/E ratio of 12.65. NUE pays a 3.66% dividend yield. It has a current ratio of 2.92 and a quick ratio of 2.00. So far this quarter, NUE has returned 23.34%. It has a 1.10 beta and recently traded at $38.21. NUE is a favorite of Jeffrey Vinik's Vinik Asset Management.
- Public Service Enterprise Group (PEG) is a $17.29B market cap company dealing in diversified utilities. It has a forward P/E ratio of 13.62 and pays a dividend yield of 4.01%. PEG has a current ratio of 1.35 and a quick ratio of 1.05. So far this quarter, it has returned 19.22%. PEG has a beta of 0.48 and recently traded at $33.48. Phill Gross and Robert Atchinson's Adage Capital Management likes PEG. So does Clint Carlson's Carlson Capital and Jim Simons' Renaissance Technologies.
- Southern Copper Corp (SCCO) is a US based copper company with a $27.7B market cap. The company has a forward P/E of 11.46 and pays a dividend yield of 7.51%. It has a current ratio of 4.69 and a quick ratio of 3.81. So far this quarter, SCCO has returned 14.66%. It has a 1.61 beta and recently traded at $31.76. Jim Simons' Renaissance Technologies and Ken Fisher's Fisher Asset Management are fans of the company. We are also very bullish about this stock. Analysts expect this stock to grow its earnings by more than 18% annually over the next five years. The stock's PE ratio is extremely low compared to its growth potential. There is another stock with similar characteristics: Apple (AAPL). Apple is also expected to grow by more than 20% annually and has a similar forward PE ratio. One problem with Apple is its huge cash hoard. We would have liked the stock better if it had a 3% dividend yield.
Disclosure: I am long PEG.
