I have analyzed five stocks that offer significant value to investors. With the aid of positive catalysts and an improving macro environment, all these stocks are expected to beat their peers. These stocks are trading at a 20% discount to their competitors and industry averages. Therefore, they could see up to 25% upside from current levels. I am bullish on these stocks, both in the short and long term.
El Paso Corporation
El Paso Corporation (EP) is a natural gas transmission, exploration, and production company. It operates mainly in the U.S. and has a market capitalization of $20.6 billion. The shares of the company are currently trading around $27 per share. The company generated a profit margin of 0.6% and a return-on-equity of around 5%. It also reported a dividend yield of 0.1%.
DCP Midstream Partners LP (DPM) is a competitor of El Paso. El Paso reported a higher gross margin of 68% versus DCP Midstream's 16%, and an operating margin of 38% versus DCP Midstream's 8%. Additionally, El Paso has a lower price/earnings-to-growth ratio of 2, versus 5 reported by DCP Midstream. This indicates that El Paso's future earnings growth can be bought at a lower relative price than DCP Midstream.
El Paso also has a lower enterprise value to EBITDA ratio of 12, versus 14.8 reported by DCP Midstream. The announcement of El Paso's merger with Kinder Morgan (KMI) resulted in the company generating returns of 82% in 2011. Currently, Kinder Morgan may be thinking of selling off El Paso's exploration and production assets. As long as Kinder Morgan is performing well, analysts expect its shares to do the same.
General Motors Company
General Motors Company (GM) is a maker of automobiles on a global scale. It has a market capitalization of $38.7 billion. Shares are currently trading at around $25 per share. The company generated a profit margin of 6.6% and a return-on-equity of 26%.
Toyota Motor Corporation (TM) is a competitor of General Motors. General Motors reported a gross margin of 12% and an operating margin of 4%, while Toyota reported the same margins at 11% and 0.6%, respectively. Toyota Motors has a relatively higher share price as shown by its higher price-to-earnings ratio of 45, versus 5 reported by General Motors. General Motors also has a lower price/earnings-to-growth ratio of 0.5, versus Toyota's 1.2, which shows that the future growth of General Motors can be bought at a relatively cheaper price. A recent agreement to maintain emission standards shows General Motors' dedication to the environment. The company's long-term potential and current low valuations make it a long-term buy stock.
Huntington Bancshares Incorporated
Huntington Bancshares Incorporated (HBAN), a bank holding company, is a provider of commercial and consumer banking services. It has a market capitalization of $4.9 billion. Shares of the company are currently trading around $6 per share. Huntington generated a profit margin of 22%, and a return-on-equity of over 10%. It reported a dividend yield of 2.7%.
Fifth Third Bancorp (FITB) is a competitor of Huntington Bancshares. Fifth Third generated an operating margin of 32.8%, while Huntington generated the same at 34.8%. Huntington also has a lower price-to-earnings ratio of 9.5 versus Fifth Third's ratio of 11. The lower price/earnings-to-growth ratio of Huntington Bancshares at 1.9, versus Fifth Third's 2.02, indicates that its future growth can be bought at a relatively cheaper price. The company's insiders own a lot of its stock, having bought $1 million worth of shares in the second half of 2011. Huntington Bancshares expects improvement in its net interest income for 2012. It has been given an outperform rating by Credit Suisse.
Intel Corporation (INTC) is a manufacturer of integrated circuits for computers and other products. The company has a market capitalization of $135 billion. Its shares are currently trading around $27 per share. Intel generated a profit margin of 24% and a return-on-equity of 27%. It has a dividend yield of 3.1%.
Texas Instruments Inc. (TXN) is a competitor of Intel. Intel generated a higher gross margin of 62% and an operating margin of 33%, versus 49% and 25% generated by Texas Instruments. Intel also has a lower price-to-earnings ratio of 17 versus TXN's 11. Additionally, Intel reported a significantly lower five-year expected price/earnings-to-growth ratio of 0.96 versus 3.6 reported by Texas Instruments. These valuations indicate that shares of Intel are cheaper than that of Texas Instruments.
With the introduction of tri-gate technology, Intel is expected to cut the size of its processors, resulting in smaller products which will be in great demand. Intel is still the largest producer of semiconductors and remains very profitable. Intel exceeded analysts' expectations by generating an increase in profits by 6% and looks to continue the trend.
Interpublic Group of Companies
Interpublic Group of Companies (IPG) is an advertising and marketing company. It has a market capitalization of $4.7 billion. Shares of Interpublic are currently trading around $10 per share. The company generated a profit margin of 6.7% and a return-on-equity of 18.8%. It reported a dividend yield of 2.3%.
Omnicom Group, Inc. (OMC) is a competitor of Interpublic Group. Interpublic generated a gross margin of 36.8%, while Omnicom generated the same at 26.5%. Interpublic reported a price-to-earnings ratio of 12 versus 14.6 reported by Omnicom. Omnicom's five-year expected price/earnings-to-growth ratio of 1.2 was higher than that of Interpublic's 0.8. These ratios indicate that Interpublic is cheaper than Omnicom.
The recent acquisition of FUSE will help strengthen Interpublic's digital products. Another acquisition is also expected to benefit the company in the near future. Interpublic has also seen a rise in the number of hedge funds investing in it in the third quarter. Analysts have given the company a buy rating due to the company returning value to shareholders.