As 2011 comes to a close, it is time to start thinking about investing in 2012. Being a lifelong contrarian, one place I like to start is with stocks that have been punished badly during the year. Given the effects of tax loss selling, December is a great time to pick up losers that appear capable of turning around in the following year. Here are the four biggest losers in the DJIA this year (I am excluding Alcoa (AA), which I recently profiled).
Bank of America (BAC)
Loss in 2011 – 61%
3 reasons BAC is undervalued at $5 a share:
1. Bank of America is significantly under analysts’ price targets. The mean analyst target on BAC is $10 and Credit Suisse has a price target of $13.
2. BAC is selling at the very bottom of its five year valuation range based on P/S and P/CF.
3. A whole lot of bad news is priced into the stock at ¼ of book value and just over 5 times forward PE.
Loss in 2011 – 40%
4 reasons HPQ appears undervalued at $25:
1. HPQ is selling at the very bottom of its five year valuation range based on P/E, P/S, P/B and P/CF.
2. The company has new management. One would think that at less 6 times forward PE the bad news over the last year is fully priced into the stock.
3. HPQ is too cheap at 4 times operating cash flow and .4 times trailing annual revenues. It also has an A rated balance sheet and pays a 1.9% dividend yield.
4. The mean analysts’ price target is $31 on Hewlett-Packard.
Loss in 2011 – 33%
4 reasons JPM is a bargain for long term investors at $28.50 a share:
1. JPM has the best management of any major bank and pays a solid 3.5% dividend yield.
2. JP Morgan has beat earnings estimates for 12 straight quarters, and its average beat over consensus over the last four quarters has been north of 10%.
3. JPM is selling at less than 6 times forward earnings-- an over 50% discount to its five year average.
4. JP Morgan is selling under analysts’ price targets. S&P has a price target of $40 on JPM and Credit Suisse is all the way up at $58.
General Electric (GE)
Loss in 2011 – 20%
4 reasons GE is a solid buy at under $15:
1. GE has long term technical support at this level (See Chart).
2. Another floor under the stock is its 4.1% dividend yield.
3. GE is just too cheap at under 5 times operating cash flow, a five year projected of .82 and 9.4 times forward earnings.
4. The mean analysts’ price target is $21 on GE and Credit Suisse has an outperform rating and a $22 price target on General Electric.