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What follows is three companies that have PE ratios below 11 an dividend yields above 2.5%. Of the three, the Street is most bullish on International Paper (NYSE:IP). A brief analysis of competitor interaction is included to highlight industry pressures and risks.

Eli Lilly (NYSE:LLY)

Lilly is rated closer to a "sell" on the Street and trades at a respective 9.4x and 12.1x past and forward earnings with a 5% dividend yield. The European Commission approved Trajenta for type 2 diabetes in adults while the FDA approved Cialis for benign prostatic hyperplasia & ED. Lilly is trying to advance solanezumab, but the phase III trial is expected to be a failure. Pfizer (NYSE:PFE), on the other hand, Pfizer is thought of as the safer investment, trading at a respective 16.9x and 9.3x past and forward earnings. Its major catalyst is tofacitinib, which has broad applications and a stronger profile.

Consensus estimates for Lilly's EPS forecast that it will decline by 8.2% to $4.35 in 2011, decline by 26.7% in 2012, and then grow by 16.6% in 2013. Assuming a multiple of 14x and a conservative 2012 EPS of $3.12, the rough intrinsic value of the stock is $43.68 implying 11.4% upside.

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International Paper

IP is rated a "strong buy" on the Street and trades at a respective 10x and 10.3x past and forward earnings with a dividend yield of 3.4%. It had stellar third quarter performance with solid generation in free cash flow and progress in its joint venture in Russia. Earnings grew 11% sequentially when adjusting for the divesture of some real estate assets. Moreover, the European box and paper business is doing quite well despite media reports to the contrary. In the backdrop of MeadWestvaco (NYSE:MWV) providing more talk than anything else - with bullish targets - the negative atmosphere around IP has only served to obfuscate the strong fundamentals. When operating results kick in, the market will correct itself.

Consensus estimates for IP's EPS forecast that it will grow by 49.8% to $3.07 in 2011, decline by 2.9% in 2012, and then grow by 10.7% in 2013. Assuming a multiple of 15x and a conservative 2012 EPS of $2.96, the rough intrinsic value of the stock is $44.40, implying a staggering 43.3% upside.

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Microsoft (NASDAQ:MSFT)

Microsoft is rated a "buy" on the Street and trades at a respective 10.6x and 9.7x past and forward earnings with a divined yield of 2.7%. Its partnership with Nokia (NYSE:NOK) to build Windows Phone-based smartphones is reportedly doing well. Nokia, on the other hand, has been struggling with innovation. As Microsoft distinguishes itself through cloud integration (eg. Office 365), it is well positioned to outperform the market.

Consensus estimates for Microsoft's EPS forecast that it will decline by 0.4% to $2.68 in 2012 and then grow by 11.6% and 11% in the following two years. Assuming a multiple of 13x and a conservative 2013 EPS of $2.95, the rough intrinsic value of the stock is $38.35, implying 31.2% upside.

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Source: Cheap Stock Faceoff: 1 Sell And 2 Buys