If trading ideas come from one of the premier investment minds in the business, it is worth taking a look. This is true of Jeremy Grantham, the co-founder and chief investment strategist for Grantham, Mayo, Van Otterloo & Co. This Boston-based asset management firm handles over $100 billion for a large number of clients. Grantham recently suggested a group of companies as potential buys; namely, Dow Chemical Company (NYSE:DOW), Hess Corp (NYSE:HES), Citigroup Inc (NYSE:C), Priceline.com Inc (NASDAQ:PCLN), and Sprint Nextel Corp. (NYSE:S) On the basis of such a heady recommendation, an analysis of these companies is a prudent move.
Dow Chemical Co
Dow is one of those companies that seems to attract a lot of attention. Back in May 2011, the stock surged to nearly $42 per share before a large selloff in September knocked nearly 50% off its share price. Since then, the stock has clawed its way back to $31.32. With a one-year target of $33.20 and a forward P/E of 11.21, Dow could reach Merrill Lynch’s $42 target once again.
When the company’s share price crossed its 50-day and 200-day moving averages in August 2011, it was tracking downward like the 50-day trend. The two moving averages will likely cross again soon, and this time, the share price will probably be climbing. The company PEG stands at 5.25 with most analysts viewing it as a hold or a buy. Showing legs and with year-to-year quarterly revenue growth rate of 17.4%, Dow looks like a very good buy.
Hess is an American oil company that, by all accounts, appears ready to break out. Based on the developments in Libya and the Gulf of Mexico, Hess seems poised for a rally. Currently trading at $58.58 per share, it is running below both the 50 and 200-day moving averages, its one-year target is a hefty $85.07, leading the majority of analysts to declare it either a buy or a strong buy.
The numbers back up the continued success of HES. A solid year-to-year quarterly revenue climb of 10.80% supports both its trailing P/E (10.43) and its forward P/E (8.39) in suggesting that the move is sustainable. Since the situation in Libya is still in flux, it is possible that Hess could outperform the expectations, making a challenge to move past its 52-week high of $87.40.
During the global financial crisis, the majority of the public refused to look at the large banking institutions as victims. That feeling is remains as banks like Citigroup reward their investors with solid gains and exciting potential. Since a long downward trend took its prices from nearly $50 per share in April 2011 to just over $21 in October, things have started climbing. Citigroup shares now sit at $29.96, with a 1-year target of $42.16 suggesting a sustained period of growth.
Offering a year-to-year quarterly revenue growth of 18% on a gross profit of $60.56 billion, the company appears to have turned the corner. With a trailing P/E of 7.98, a forward P/E of 6.93 and a PEG of 2.13, investors should consider taking a look at a stock that most analysts have listed at either a hold or a buy.
Priceline is well-known among Internet users who search for the best travel deals. It is also a name that should be popular with people who are looking for a strong investment in 2012. Two years ago, this stock was trading at just over $65 per share; today it is $483.77. Sitting below its 50-day and 200-day moving averages, the company’s future looks bright, thanks to a one-year target estimate of $620, well over its 52-week high of $561.88.
By comparison, Priceline isn’t just performing well; it is dominating its competition. The market leader with a market cap of $24 billion, it is much larger than competitors Expedia Inc ($4.3 billion) and Orbitz Worldwide Inc. ($412 million) In addition, Priceline is the leader in terms of EPS at 18.88 (Expedia at 3.37 and Orbitz at -.66) and P/E at 25.62. (EXPE with 8.75 and OWW is unavailable) The company has a PEG of 0.74 and a P/S of 5.79; Expedia has 1.06 and 1.10, while Orbitz records 1.44 and 0.52. Priceline is in control of the online travel market, and investors should strongly consider holding a position.
Sprint Nextel Corp
Sprint might be the most interesting of Grantham’s picks. Viewed by many as a struggling company that can’t push its share price above the $5 mark, there are still some reasons to be cautiously optimistic about this large cellular service provider. The stock is undervalued, trading below both its 50 and 200-day moving averages. With a current share price of $2.23 and a one-year target estimate of $3.88, the signs are there to suggest this provider can make a run. Add to that a rumor that Sprint may be marketing the iPhone5, and investors could be tempted to stand up and take notice.
Until such an announcement is made, however, it is hard to get excited about Sprint Nextel. The share price fell of the proverbial table in August 2011, when it plunged nearly 40%, going from nearly $5.25 per share to just over $3.00, at which point I last recommended it. Another downturn came with a large selloff in October, pushing the price down to its current level. While its undervalued status will encourage some speculators to take a chance, a safer move might be to wait until the announcement comes from Apple Inc (NASDAQ:AAPL) to see if a distribution deal for the iPhone can turn around the sagging fortunes for this company.
Finding New Buy Ideas from Grantham
Everyone evaluates the market differently, but it’s hard not to notice when opinions come from someone with the stature of Jeremy Grantham. Strong future numbers, market domination and steady performance are all ways to determine new holdings. For these reason, Dow Chemical, Hess, Citigroup and Priceline look like strong potential buys, while Sprint Nextel appears better left as a hold.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.