It has been a brutal two weeks in the market, as the European contagion rocks equities. The market volatility is disconcerting. However, the sell-off has left many blue chip stocks deep in bargain territory. Two stocks I am adding new money to are Hess (HES) and Walgreens (WAG), as their valuations are compelling and appear to have little left on the downside.
Hess Corporation
“Hess Corporation and its subsidiaries operate as an integrated energy company. It operates in two segments, Exploration and Production (E&P) and Marketing and Refining (M&R). The E&P segment explores for, develops, produces, purchases, transports, and sells crude oil and natural gas. This segment engages in exploration and production activities principally in Algeria, Australia, Azerbaijan, Brazil, Colombia, Denmark, Egypt, Equatorial Guinea, Gabon, Ghana, Indonesia, Libya, Malaysia, Norway, Peru, Russia, Thailand, the United Kingdom, and the United States”. (Business description from Yahoo Finance)
4 reasons HES is a great long term buy at $55:
1. With the exception of the depth of the crisis in March 2009, HES has shown a strong propensity to put in a bottom in the low 50s. (See 5 yr. Chart)
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2. The stock is dirt cheap at 8 times forward earnings, just over book value and a five year projected PEG of .75.
3. Hess is selling near the bottom of its five year valuation range based on P/E, P/B, P/S and P/CF.
4. The mean analysts’ price target on HES is $84, UBS just initiated a price target of $79 on Hess, and Credit Suisse has a price target way up in the 110’s, citing its properties and prospects in the Bakken and Ghana.
Walgreen
“Walgreen Co., together with its subsidiaries, operates a chain of drugstores in the United States. It sells prescription and non-prescription drugs; and general merchandise, which include household products, convenience and fresh foods, personal care, beauty care, candy, photofinishing products, and seasonal items, as well as home medical equipment, contact lens, vitamins and supplements, and other health and wellness solutions”. (Business description from Yahoo Finance)
4 reasons WAG is a bargain at $32:
1. The stock has taken a huge hit given its problems remediating a contract dispute with Express Scripts (ESRX). This has put a huge amount of downside pressure on the stock. However, given the stock’s favorable reaction on Friday to a rumor that the Express Scripts problems were close to being resolved, there is large upside to the stock once this overhang is removed.
2. Walgreen has an A rated balance sheet, is selling at 11 times earnings and provides a solid yield of 2.9%.
3. The stock appears to be developing short term technical support in the $31 to $33 range (See Chart).
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4. Walgreen is selling below analysts’ price targets. S&P has a $40 price target on Walgreen, the mean analysts’ price target is $38 and TheStreet is at $42.
