In this article, I take a closer look at a few large market cap stocks selling at a discount to fair value that were screened through tools at finviz.com. In particular, I screened for percentage yield above the industry average, net and operating margins above the industry average, and a forward price-to-earnings ratio below the industry average. Of course, please use this analysis as a starting point for your own due diligence.
Intel Corporation (INTC): Shares are trading around $25.10 at the time of writing, in the middle of the 52-week trading range of $19.16 to $25.92. At the current market price, the company is capitalized at $128.01 billion. Earnings per share for the last year were $2.31, and it paid a dividend of $0.84, yielding 3.30%.
Intel is seeking growth through a growing segment in personal computing with its Ultrabook, a competing product with the Apple (AAPL) MacBook Air. The Ultrabook product attempts to bridge touch-screen benefits of tablets with the keyboard and computing of notebooks.
As one of the bluest of the blues, investors love Intel for its strong dividend especially when compared with 10-year treasuries with yields less than 2%. Investors concerned with foreign debt crises look to these blue chips as safe havens. With an earnings release on January 19, investors looking to strengthen their portfolio with a healthy earner (32.8% operating margin vs. industry average 7.97%) will add a little more Intel. As I noted last month, Intel could see an upside pop in this upcoming quarter's earnings.
Teva Pharmaceutical Industries Limited (TEVA): Shares are trading around $44.60 at the time of writing, in the middle of the 52-week trading range of $35.00 to $57.08. At the current market price, the company is capitalized at $39.43 billion. Earnings per share for the last year were $3.36, and it paid a dividend of $0.69, yielding 1.60%.
On January 1st TEVA announced a change of leadership, installing Dr. Jeremy Levin, a former executive at Bristol-Myers Squibb (BMY) and Novartis (NVS). During the conference call Chairman Phillip Frost predicted the company would see good growth and expects to return more to shareholders in the upcoming period. Shares rose 6.8% following the announcement. Even with the spike in share price, forward price-to-earnings is only 7.94 compared with Novo Nordisk A/S (NVO) at 18.90 and Allergan Inc. (AGN) at 20.94 indicating that Teva is a good buy.
Applied Materials Inc. (AMAT): Shares are trading around $11.50 at the time of writing, in the middle of the 52-week trading range of $9.70 to $16.93. At the current market price, the company is capitalized at $15.01 billion. Earnings per share for the last year were $1.45, and it paid a dividend of $0.32, yielding 2.70%.
Motley Fool CAPS, the websites investing community, gave AMAT a five star ranking where 95% of the group expect the stock to outperform the S&P 500 (SPY) this year. The group supports AMAT based on its strong presence as an industry supplier, a growing dividend and strong management. AMAT was also included on the Bloomberg short interest percent decrease list as of Dec 30, with a 26% decrease during the last half of the month indicating increased confidence in the company. Investors should add AMAT as it is a good value across all price ratios compared with leader Intel Corporation with price to earnings at 7.93 vs. 10.88, price-to-earnings growth at 0.86 vs. 1.03 and price to free cash flow at 8.25 times vs. 20.79.
Lockheed Martin Corporation (LMT): Shares are trading around $81.50 at the time of writing, near the top of the 52-week trading range of $66.36 to $82.99. At the current market price, the company is capitalized at $26.19 billion. Earnings per share for the last year were $8.55, and it paid a dividend of $4.00, yielding 5.00%.
Can Lockheed Martin keep up the 30.23% quarter-over-quarter earnings growth? At the end of 2011 the company obtained a $1.9 billion contract to produce the THAAD Weapon System for the United Arab Emirates. This is a consolation for missing out on a $3.48 billion seven-year deal that was awarded to competitors Boeing Corporation (BA) and Northrop Grumman Corporation (NOC). The future is less certain with a directive from the pentagon to reduce spending on the F-35 program. Analysts' expected earnings growth is a steady 3.95%. However, a better value might be Raytheon Corporation (RTN) that has a better price to earnings (9.60 vs. LMT 10.23) and a better operating profit (11% vs. LMT 8.55%).
Exelon Corporation (EXC): Shares are trading around $39.70 at the time of writing, in the middle of the 52-week trading range of $39.06 to $45.45. At the current market price, the company is capitalized at $26.35 billion. Earnings per share for the last year were $3.63, and it paid a dividend of $2.10, yielding 5.20%.
Although the S&P 500 was flat U.S. utility stocks increased 14.8% in 2011 beating all other sectors by 5%. In April 2011, EXC and Constellation Energy Group Inc. (CEG) signed a plan to merge. Since signing the plan EXC has incurred $37 million and stands to lose $800 million if it backs out. The company also recently completed the acquisition of a 230-MW clean energy development in northern Los Angeles County. It expects to invest in up to $713 million through 2013 and the first portion of the project should come online in late 2012. Compared with the industry, price to earnings is 10.95 for EXC vs. 14.44 and operating margin is 22.43% for EXC vs. 10.15%. Investors should consider picking up EXC because of its high dividend yield, operating performance, market value and commitment to renewable sources.