By Kathleen Martin
In our opinion, there remains significant downside risk in the market. However, the following 5 stocks all appear undervalued on a discounted cash flow basis. Please use my research as a starting point for your own due diligence.
Ford Motor Company (F) now trades around $12. The year high is $18.88, the low $9.05. It has rice earnings is 7.22 and the earnings per share is $1.67. It has cash of $20.58 billion and debt of $95.13 billion. 2011 was a good year for Ford its sales were up 11% from the previous year and it re-instated a $0.05 quarterly dividend. Ford has reached a four year deal with the United Auto Workers Union and has pledged $6.2 million in investments in its U.S. auto plants. Ford has made significant inroads in retiring its debt and rebuilding its business, increasing its sales in China by 7% and adding four new plants in China to better serve that market. Still, its debt load is a concern and its performance has to remain positive and meet expectations and guidance numbers in order for it to remain a buy in this market.
Apple Computer Inc. (AAPL) trades around $419.00 has a year high of $427.75 and a year low of $310.50. It has cash of $25.95 billion and no debt. The book value is $82.45 per share. Revenue of $108.25 billion was recorded in the third quarter of 2011. Apple is a company that has massive world-wide presence and brand recognition. As recently as this week, Apple has had to contend with consumers nearly rioting while waiting for the iPhone 4S in Shanghai and Beijing. It lost its appeal with Samsung over its tablet infringement case against which will lift the ban of sales of the Samsung Galaxy tablet in markets such as China and Australia. This has not hurt the sales of the iPad to date. Apple has a strong following fuelled by slick design, user friendliness and high utility. More importantly, the company is cash rich and has no debt. It is only trading at approximately five times book value a low multiple for tech stocks, especially ones with the market penetration of Apple.
Cisco Systems Inc. (CSCO), is a dominant global player in network systems, equipment and software. Its stock trades around $19.00. It has a year high of $22.34 and a year low of $13.30. Cisco pays a dividend of 1.30% and has EPS of 1.16. Book value per share is $8.79. Q1 2012 numbers show increase in revenue from the previous year's period of just over 10% to $11.3 billion. Guidance for the second quarter of 2012 indicates earnings per share of $0.08 to $0.11 due to share based compensation expenses. Cisco has cut 3,000 employees and plans to eliminate up to 10,000 jobs to cut more than $1 billion in expenses in 2011. Cisco states its continued success is due to listening to its customers to drive the business strategies and the corporate structures. Cisco is trading at approximately two times book value, pays a dividend and has increased revenue in its worldwide markets. It is a very inexpensive, dividend paying stock in this market environment.
Intel Corporation (INTC) trades around $25.00 has a year high of $25.62 and a year low of $19.16. The earnings per share are 2.31 and the dividend yield is 3.3%. Book value per share is $9.01. The cash position is $15.2 billion and debt is $7.27 billion. Intel has stated that it aims to get six million app users in 2012 with AppUp their online application store. Intel recorded record growth in the third quarter of 2011 and had less than expected revenues in the fourth quarter due to a worldwide shortage of hard drives. In 2011, Intel upgraded its presence in the content delivery market by providing a new generation chip which allows for high definition delivery of viewing content over PC's in 2011. Intel is a well managed company, is aware of its weak spots and responds to consumer inquiries and complaints with solutions on a timely basis. Its stock price is trading at approximately two and a half times book value, has low debt and executes on its various business ventures, making worthy of flagging as an income pick. It continues to deliver consistent returns and although trading near its year high, looks relatively cheap in this market.
Sirius XM Radio (SIRI) trades around $2.00 has a year high of $2.44 and a year low of $1.27. It had third quarter 2011 earnings of $0.03 per share. It has $604.59 million in cash and $3.03 billion in debt. It has high debt against not much cash and may have to borrow at high rates if they need any short term financing for new ventures. Its book value per share is $0.16. It had revenue of $695 million in Q3 2011 up from $645 million in Q3 2010. Corporate news releases indicate an interesting and dynamic line up of shows, including national news, talk shows interactive kids programming. Sirius added 1,700,000 subscribers in 2011. Sirius expects robust growth in 2012 from $2.97 billion in revenue in 2011 to $3.03 billion in revenue for 2012. The rise in revenues will be due in part to the ability of each digital station to capture deal revenues, particularly local or national deals that are offered on the stations' web sites and other revenue driven to the digital market through tie-ins with merchandisers and local businesses. Sirius has partnerships with every major automaker, as well as selling online and in several retail outlets in the United States. The stock is has a strong bid at these price levels and trades high volume. The market appears to know something about this stock and it appears it is all good news.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.