In this article, I will discuss five stocks which have relatively better valuations than their competitors. Due to low valuation, I expect these stocks to offer better returns than their peers. These days investors are worried about getting caught in value traps. However, the analysis below shows why there is value in these names.
People's United Financial, Inc. (PBCT) is a bank holding company for People's United Bank. Shares of the company are currently trading near $13 per share and have traded between a narrow range of $10.5 and $13.96 per share. The company has a relatively low beta of 0.44, indicating that the stock is not volatile. People's United Financial has reported a dividend yield of 4.7%.
Bank of America (BAC) is a competitor of People's United Financial. Currently, People's United Financial reported a quarterly revenue growth of 39.8% and an operating margin of 29.4%. On the other hand, Bank of America reported a quarterly revenue growth of 17.6% and an operating margin of 4.5%. While People's United Financial reported a price-to-equity ratio of 23.9 times, Bank of America reported the same value at 725 times, indicating that its shares are significantly more expensive than that of People's United Financial. The company has a lower 5 year expected price-to-earnings-to-growth ratio of 0.8 times than the industry average of 1.65 times. This indicates that it is cheaper than what is being offered by most of its competitors. People's United Financial has one of the higher dividend yields among its competitors. With People's United Financial looking at three consecutive quarters of rising net income, I believe that the trend will continue to favor the company and is likely to reward investors in the future.
Kraft Foods, Inc. (KFT) is a marketer of packaged food. Shares of the company are currently trading near their yearly highs, at around $39 per share. Over the last 52 weeks, Kraft's shares have traded between $30.21 and $38.84 per share. The company has a low beta of 0.49, indicating that the stock is not volatile in nature. Also, Kraft Foods offers a dividend yield of 3%.
Kraft Foods is performing better than the industry averages. Currently, its gross margin of 35.4% and operating margin of 13.2% are greater than the industry averages of 26.5% and 6.3%, respectively. Nestle SA (NSRGY.PK) is a competitor of Kraft Foods and it has a higher price-to-sales ratio of 1.7 times, versus the 1.3 times reported by Kraft Foods. This is a favorable sign for Kraft Foods. Another competitor of Kraft Foods is B&G Foods, Inc. (BGS). B&G Foods has a higher price-to-earnings-to-growth ratio of 1.86 times versus 1.7 times reported by Kraft Foods. B&G Foods also has a higher price-to-sales ratio of 2 times. Kraft Foods' strong financials and a high dividend yield make it a worthy investment for anyone looking for steady returns. The only downside is the company's large debt.
Potash Corporation of Saskatche (POT) sells fertilizer and seed products in the U.S. and Canada. Shares of the company are currently trading near $45 per share. Over the last 52 weeks, its shares have traded between $38.42 and $63.97 per share. The company has a beta of 0.6, indicating that its stock is not volatile. Also, Potash reported a dividend yield of 0.6%.
Potash has a relatively high profit margin of 36% and a return-on-equity of 38%.
The Mosaic Company (MOS) is a competitor of Potash. Potash is currently generating a gross margin of 51% versus 32% generated by Mosaic. The company's operating margin of 46.4% is also higher than Mosaic's value of 28%. Potash has an enterprise value to EBITDA ratio of 10 times, while its competitor, Syngenta AG (SYT), has an enterprise value to EBITDA ratio of 11.6 times, indicating that Syngenta is more expensive than Potash. Scotts Miracle-Gro Company (SMG), a competitor of Potash, reported a price-to-equity ratio of 18.6 times, versus 13.7 times reported by Potash. This indicates that shares of Potash are valued cheaper. Potash has a projected growth of 11.3% per annum. With a growing demand for fertilizers and potassium, Potash is looking to benefit from this news with an expected increase in share prices.
DDR Corporation (DDR) is a real estate investment trust based in the U.S. Its shares are currently trading neat $14 per share and have traded within a range of $9.76 and $15.28 per share, over the last 52 weeks. The company's stock has been volatile, as shown by a beta of 2.39. Also, DDR Corporation offers a dividend yield of 3.5%.
General Growth Properties, Inc. (GGP) is a competitor of DDR Corporation. While DDR Corporation reported a gross margin of 69.8% and an operating margin of 32.8%, General Growth reported a gross margin of 62% and an operating margin of 24%. Another competitor of DDR Corporation is Kimco Realty Corporation (KIM). DDR Corporation reported a price-to-earnings-to-growth ratio of 2 times while Kimco reported the same ratio at 2.4 times, indicating that DDR Corporation's stock's growth can be bought at a cheaper price right now. Kimco also had a higher price-to-sales ratio of 8 times versus 4.5 times reported by DDR Corporation, showing that DDR Corporation's stock is cheaper. Recently, DDR Corporation announced that it would form a joint venture with The Blackstone Group (BSX) in order to purchase 46 shopping centers, worth an estimated $1.43 billion. Also, the company is looking to restructure its portfolio; a move which is going to raise valuations in the long term.
EMC Corporation (EMC) is a provider of information and virtual infrastructure technologies. Shares of the company are currently trading near $23 per share. Over the last 52 weeks, its shares have traded between $19.84 and $28.73 per share. The company's beta of 0.91 indicates that its stock is not volatile. EMC Corporation has a return-on-equity of 13% and a profit margin of 11.7%.
Currently, EMC Corporation's gross margin of 60% and operating margin of 17.7% are higher than Hewlett-Packard's (HPQ) values of 23.8% and 9.4%, respectively. These margins are also significantly higher than the industry averages. Hewlett-Packard reported a price-to-earnings-to-growth value of 1.5 times, while EMC Corporation reported a value of 0.9 times. This shows that the growth in EMC Corporation's stock can be bought at a lower price right now. KLA-Tencor Corporation (KLAC), a competitor of EMC Corporation, reported a slightly higher price-to-sales ratio of 2.6 times, versus 2.4 times reported by EMC Corporation. Another competitor, Quantum Corporation (QTM), reported a significantly inflated price-to-equity ratio of 340 times, versus 23 times reported by EMC Corporation, indicating that shares of EMC Corporation can be bought much cheaper. EMC Corporation has currently placed itself in a number of high-growth opportunities, which puts it ahead of its competitors. This has led to a double-digit growth in revenue for the company, with more than 90% of analysts giving the company a buy rating.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.