In the following article I will discuss five companies that are good money making ideas based on fundamentals, profitability and/or dividend payout measurements. While past results are not a guarantee of future performance, at current prices, these five companies offer a compelling buying opportunity and each provides investors with a unique margin of safety.
Gilead Sciences (NASDAQ:GILD) recently traded at around $48 per share, slightly lower than the high of its 52-week trading range ($34.45 to $48.99 per share), has 751 million shares outstanding and a market capitalization of $36.6 billion. For the 12 months ending September 30, 2011, Gilead generated strong cash flow from operating activities of $2.7 billion and as of its most recent quarter end had an earnings before interest, tax and depreciation (EBITD) margin of 49.2% which is significantly higher profitability compared to the EBITD of the average company in the biotechnology industry (26.8%), the healthcare sector (17.3%) and the S&P 500 (19.6%). Gilead produces medicine for life-threatening conditions such HIV, cancer and cardiovascular, liver, respiratory and inflammatory diseases and has a strong pipeline of drugs. In January of 2012, Gilead completed the acquisition of Pharmasset for $11.2 billion which, while expensive at $137 per share or an 89% premium to Pharmasset price the day before the announcement of the transaction, adds further strength to the company's products and helps transform Gilead from a value to a growth company. At a price to earnings ratio of 14, Gilead stock is trading at a good value level and offering a downside protection in the high-growth, high-profit margin area of treating life-threatening conditions.
Home Depot (NYSE:HD) recently traded around $45 per share near the high end of its 52-week range ($28.13 to $45.50 per share), pays a quarterly dividend of $0.29 per share for an annual dividend yield of 2.6%, and has 1.54 billion shares outstanding for a market capitalization of about $69 billion. For the nine months ended on October 31, 2011, Home Depot generated a strong cash flow from operating activities of $5.7 billion. Currently, it is repurchasing shares and is expected to complete its current $6.8 billion share repurchase authorization program by the end of 2014. Home Depot has the largest share of the home improvement market and offers exposure to two markets that are expected to grow faster than other developed markets due to positive population growth rates (U.S. and Canada) and two emerging markets (Mexico and China). According to the Leading Indicator of Remodeling Activity published recently by the Joint Center for Housing Studies of Harvard University, home improvement in the U.S. is expected to start rising in the second half of 2012. Assuming that by 2013 Home Depot reaches its 2006 sales and net earnings levels of $79 and $5.3 billion, respectively, and applying a price to earnings ratio of 15 which is lower than the current price to earnings ratio of about 19, this gives a value per share of $51 in 2013. This means that investors are paid a 2.6% dividend yield for a year and there is a strong possibility of a 13% capital appreciation per common share. The analysis excludes the repurchase of shares which would increase earnings per share further.
Eli Lilly (NYSE:LLY) recently traded around $40 per share, has a 52-week trading range between $33.46 to $42.03 per share, 1.16 billion shares outstanding for a market capitalization of $45.4 billion, and pays a quarterly dividend of $0.49 per share for an annual dividend yield of 4.9%. The company operates in a high-growth area, manufacturing pharmaceuticals for treating diabetes, osteoporosis, cancer, mental and cardiovascular diseases as well as animal health products. Eli Lilly has a strong balance sheet and as of September 30, 2011, it had $6.8 billion of cash and only $5.5 billion of long-term debt. At the same time, the company has attractive profit margins (80% gross margin and 30% earnings before interest, tax and depreciation margin) and generated $5.3 billion of cash from operating activities during the first nine months of 2011. Its price to cash flow ratio of 7.5 is favorable compared to the 22.5 price to cash flow ratio for the pharmaceutical industry as a whole. Overall, Eli Lilly has a diverse offering of pharmaceutical products, access to developed and emerging markets, and its stock is currently cheap while paying an above average but stable dividend. All this will help the share price to outpace the market.
Windstream (NASDAQ:WIN) recently traded around $12 per share almost halfway between its 52-week range of $10.76 to $13.57 per share, has 516 million shares outstanding for a market capitalization of $6.2 billion, and pays a quarterly dividend of $0.25 per share for an annual dividend yield of 8.3%. Windstream has a much better earnings before interest, tax depreciation margin (46%) than the industry. Windstream is growing mostly by acquiring smaller communication services companies and integrating them. Its most recent acquisition was PAETEC Holding for about $2.26 billion, completed on November 30, 2011. Windstream is also a potential acquisition target for one of the larger telecommunication companies. Currently, Windstream has an enterprise value of $13.6 billion and operating income for the 12 months ended September 30, 2011 of $2.44 billion. In April 2010, CenturyLink (NYSE:CTL) acquired Qwest which had $2.56 billion operating earnings in 2009 but its enterprise value at the time of the acquisition was $22.4 billion. Clearly, Windstream stock is cheap compared to the communications industry while offering a generous dividend.
Exxon Mobil (NYSE:XOM) trades around $85 per share at the time of this writing and has a 52-week trading range between $67.03 and $88.23 per share, has 4.73 billion shares outstanding for a market capitalization of $402 billion and pays a quarterly dividend of $0.47 per share for an annual yield of 2.2%. Exxon Mobil is valued cheaply compared to other energy companies in the sector. In 2011 it earned $8.42 per share for a price to earnings ratio of 10.1 which is lower than the average for the energy sector of 13.5 and the S&P 500 of 14.1. Also, Exxon Mobil is actively repurchasing shares. It is expected to repurchase shares worth $5 billion in the first quarter of 2012 while it also reduced its shares outstanding in 2011 by 278 million ($22 billion) through repurchases. Exxon Mobil offers a stable dividend and a reasonable valuation level. As demand for energy is expected to continue to increase, shareholders of Exxon Mobil will benefit in the long-term.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.