Investors are always searching for companies that are undervalued. Overlooked by the rest of Wall Street, these "diamonds in the rough" have the potential to great big gains for the visionaries who add them to a portfolio. Whether talking about a growth or dividend stock, each has the ability to create profits. Six companies to consider as undervalued are United Technologies Corporation (NYSE:UTX), Costco Wholesale Corporation (NASDAQ:COST), Praxair Inc (NYSE:PX), Express Scripts Inc (NASDAQ:ESRX), General Mills Inc (NYSE:GIS) and Cognizant Technology Solutions (CTSH).
United Technologies Corporation
Providing technology, innovative products and service to the aerospace and construction industries, Hartford, Connecticut-based United Technologies manufactures everything from elevators to air conditioners and video surveillance equipment. This $70 billion company seems impossible to overlook; yet, many investors still haven't jumped on the bandwagon. UTX had a big year in 2011, and this year looks to be another strong one for this manufacturing giant.
Currently trading at $77.50, UTX is below the midpoint of the company's 52-week range. ($66.87 to $91.83) The projected growth is very solid, with a one-year target estimate of $89.44, good for a gain of nearly 14%. The company pays an annual dividend of $1.92, for a yield of 2.50%. With quarterly earnings growth of 10.5% and a solid levered free cash flow of $5.6 billion, United Technologies has the potential to make another big jump this year, offering a handsome mixed return to investors who take notice.
Costco Wholesale Corp
Bulk buying is still incredibly popular. Costco Wholesale, a heavyweight from Issaquah, WA, is not only a major player in the sector, but in the market as well. Another mixed stock, COST offers solid fundamentals, a growing share price and a nice dividend to make it very appealing. The current share price is $82.72, which lands above the midpoint of its 52-week range of $69.54 - $88.68. Growth is expected as the one-year target is a healthy $84.52. The annual dividend is $0.96, which puts its yield at 1.20%.
The forward-looking numbers cast a favorable light on COST as well. The stock has a forward P/E of 18.93 and a 5-year PEG ratio of 1.59. Costco enjoyed a quarterly revenue growth of 12.4%, and it is sitting on more than $1.32 billion in levered free cash flow. For investors who like profitable stock, Costco has upside for very good potential gains.
Connecticut-based Praxair is another largely overlooked stock with great potential. Specializing in the production and distribution of industrial gases like oxygen, nitrogen, argon, and others, the company does business primarily in North and South America, Europe and Asia. Currently trading above the midpoint of its 52-week range ($88.64 to $111.74) at $106 per share and paying a dividend of $2 for a yield of 1.8%. Investors can expect great things from PX, as its one-year target of $115.59 represents an increase of about 9%.
Much like its competitor Air Products and Chemicals Inc, (NYSE:APD) the Praxair fundamentals suggest continued growth. Both companies have performed well, with Praxair having a better return on equity, (23 to 21.50) quarterly revenue growth (14.10 to 11.10) and current ratio. (1.36 to 1.25) Both companies are likely to benefit from increased manufacturing in the months ahead, as well as the growing use of gases in the medical field. Although both companies represent strong investments, the upward trend of PX stands in contrast with APD, suggesting that Praxair is the better investment at this time.
Express Scripts Inc
Pharmacy benefits management company Express Scripts is another undervalued stock to consider. This St Louis business provides management and administration services for its clients in the medical insurance industry. Shares in the $25.5 billion company are currently trading for $52.50, well above the midpoint of its 52-week range of $34.47 to $60.89. The price is expected to climb this year, as evidenced by its one-year target estimate of $58.63. The company has quarterly earnings growth of 7.7% on a gross profit of $2.96 billion.
Although PX does not pay a dividend, this is potentially a very profitable acquisition. Shares are trading above both its 50-day and 200-day moving averages, and its price appears to be trending upward. Oppenheimer upgraded PX to "outperform" in October 2011, and the company seems to be doing just that. Investors who are looking to get into a medically-related holding should consider taking a position at this time.
General Mills Inc
General Mills is known for some of the most famous food brands in the world. Founded in 1928, this Minnesota-based company has a market cap of $26.2 billion. The current share price of $40.62 is down slightly after breaking through the top end of its 52-week range of $34.54 to $41.06. The company pays a solid $1.22 dividend, good for a yield of 3%. The company has a P/E of 17.3 and a PEG ratio of 2.02.
GIS is widely considered a high-yield dividend stock, but referring to it as a mixed stock might be more accurate. The share price has already broken through its high this month, and the price is tracking higher, mirroring both its 50-day and 200-day moving averages. With steady cash streams and a levered free cash flow of $1.35 billion, one of the biggest names on the grocer's shelves won't be a secret for long.
Cognizant Technology Solutions
Undervalued but not unnoticed, Cognizant Technology Solutions is a supplier of information technology, including consulting, implementation and maintenance in Europe, North America and Asia. The company has gotten publicity lately as Lone Star Capital's Steve Mandel recently added 2.1 million share of CTSH stock. With 32% quarterly revenue growth and an 11.5% increase in year-to-year earnings, it's likely that others will do the same.
Cognizant's current share price of $71.75 is just over the midpoint of its 52-week range. ($53.54 to $83.48) The stock is expected to move this year, as indicated by its one-year target estimate of $82.83. This would represent an increase of over 15%. The projected gain is supported by a forward P/E of 21.05 and a PEG of 1.32. With investors like Deutsche Bank rating the stock a buy, now is the time to consider adding shares.
Finding Upside in Undervalued Stock
Identifying and initiating positions in undervalued companies is the perfect way to find quick gains. Companies with a strong upside that still is not reflected in the relative share price can offer solid gains. Of the many companies to consider, United Technologies Corporation, Costco Wholesale Corporation, Praxair Inc, Express Scripts Inc, General Mills Inc and Cognizant Technology Solutions are all candidates for this kind of move.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.