The following are five stocks which provide good investment opportunities based on fundamentals and peer to peer analysis. These are established companies and are proven leaders in their business areas. All of them taken together or separately should preserve investors capital and provide potential for capital appreciation. The first company has a limited investment horizon of about four months, as the company is in the middle of being acquired and is a merger and acquisition play.
El Paso (EP) recently traded around $27 per share, near its fifty two week high of $27.14 per share (the low was $15.92), and has 771 million shares outstanding for a market capitalization of $20.8 billion. On October 16, 2011, Kinder Morgan (KMI) and El Paso announced that the companies have signed an agreement under which Kinder Morgan would be acquiring El Paso for $14.65 in cash, 0.4187 shares of KMI common stock and 0.640 KMI warrants per share of El Paso common stock, exercisable in five years at $40 per share. As of this writing, Kinder Morgan stock is trading around $32 per share, and the warrants are valued at $0.96. At these valuations, El Paso shareholder will receive, sometimes in the second quarter, $14.65 plus $13.4 if Kinder Morgan share price is unchanged, and warrants a valuation at $0.96, for a total price of about $29, or a $2 premium to El Paso's current stock price of $27. This gives a gain of over 7% for about four months, or around 22% annualized profit. If KMI shares decline significantly, the purchase price may decline under $27. I estimate that this is unlikely, as KMI current annual dividend yield of 3.9% is sustainable and relatively high compared to the industry and should prevent a large fluctuation in KMI stock price.
General Motors (GM) recently traded at around $26 per share, its fifty two trading range is between $19 and $37 per share, and the company has 1.56 billion shares outstanding, for a market capitalization of around $41 billion. General Motors is currently a profitable company which is undervalued relative the industry, as well as the S&P 500. The company had a debt to equity ratio of only 0.3, compared to a debt to equity ratio of 2 for the industry and 0.8 for the S&P 500. Its price to earnings ratio is 5.9 similar to the price to earnings ratio of the industry but lower than the S&P 500 average price to earnings ratio of 14.2. General Motors had earnings before interest, tax and depreciation (EBITD) of $11.9 billion for the twelve months ending September 30, 2011, for a relatively low price to EBITD of 3.4. For example, Toyota Motors (TM) has a price to EBITD ratio of about 7.5 and Ford (F) of about 3.6. General Motors' common stock is relatively inexpensive, and investors in this revamped global automaker should benefit from a pick-up in economic activity and the demand for cars and trucks. It's interesting to note that only 46% of General Motors' outstanding shares currently trade (the rest are held by warrant holders, the U.S. treasury and General Motors workers and retirees). This is a positive, as there is less supply for General Motor shares. For comparison, about 97.8% of Ford's outstanding shares are currently traded.
Huntington Bancshares (HBAN) recently traded around $6 per share, its fifty two week trading range is $4.46 to $7.70, pays a quarterly dividend of $0.04 per share for an annual dividend yield of 2.7%, and has 864 million shares outstanding, for a market capitalization of about $5.2 billion. Huntington has a price to earnings ratio of 10, which is lower than the industry average of 13.2 and the S&P 500 of 14.2. Also, it has a price to book value of only 1, which means that if the company sold its assets today and paid its liabilities, it would have enough left over to pay back to common stock shareholders the current share price. For example, the industry price to book value ratio is 1.3, meaning that the industry as a whole can pay to common shareholders, after liquidating its assets and paying bond holders and other creditors, a dollar for each $1.30 worth of common stock. Clearly, Huntington common stock is undervalued compared to peers and offers an attractive entry point at around $6 per share in addition to a stable dividend of $0.16 (which might be increased) per share and year.
Intel (INTC) is trading around $27 per share at the time of this writing, with a fifty two week trading range between $19.16 and $27.00 per share. The company has 5.1 billion shares outstanding for a market capitalization of $137 billion, and pays a dividend of $0.21 per share, for an annual yield of 3.1%. Intel is currently undervalued compared to the industry. Its price to earnings before interest, tax and depreciation (EBITD) is only 5.8 compared to 6.6 and 8.8 for Advanced Micro Devices (AMD) and Texas Instruments (TXN). Also, Intel has a better EBITD margin (43.4%) than the industry (21.2%) and the S&P 500 (19.7%), and its cash flow generation ability and balance sheet are rock solid. Intel is trading at its fifty two week high, but the company is still moderately valued compared to its peers and the market in general. With a stable dividend for a current annual yield of 3.1% and a global customer base, Intel is a good investment opportunity at $27.
Interpublic Group of Companies (IPG) is trading around $11 per share at time of writing, has a fifty two week range between $6.73 and $13.35 per share, pays a quarterly dividend of $0.06 per share, for an annual dividend yield of 2.2%, and has 461.2 million shares outstanding, for a market capitalization of about $5.1 billion. The company has relatively low level of long-term debt ($1.2 billion) for a long-term debt to equity ratio of about 0.5 compared to 0.8 for the industry and the S&P 500. Its price to earnings ratio is 12.7 compared to 20.3 for the industry and 14.2 for the S&P 500. Interpublic low valuation is in part due to risks associated with integrating recent acquisitions. I believe these acquisition should make the company more attractive over time, not less, as Interpublic is trying to expand its digital portfolio. With a Summer Olympics and U.S. Presidential elections in 2012, Interpublic should deliver a strong 2012 for shareholders, and a re-evaluation in twelve months may be needed. For now, Interpublic common stock is a good buy.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.