5 High Value Stocks For 2012

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 |  Includes: AXP, DAN, DFS, MA, MCD, PETM, WMT
by: Ry Frank

With the recent developments of positive jobs news and a more quickly improving economy, investors are looking for stocks that are positioned to grow along with the economy. The five stocks I have chosen for research all have one thing in common: as income rises, consumer discretionary spending will likely increase, and these companies will sell more products. I believe this will impact the overall profitability and thus provide solid investment opportunities.

PetSmart (PETM): One month ago it was at $54.20 per share and today it's at $53.77 per share. In the same time period the Nasdaq has risen from 2650 to 2905, a gain of 255 points. This stock is presently trending upward off an August 52 week low of $37.76 and is just coming off its 52 week high of $54.96 per share. PetSmart also pays a dividend of $0.56 (annually) which amounts to a dividend yield of about 1.1% at the stock's current price. The company pays out this dividend consistently and since 2009 has raised it annually. The trailing twelve month price to earnings multiple on the stock is 22.23 on earnings of $2.42 per share-- compared to the sector average of 14.09. This implies investors are willing to pay a premium on the stock.

Now that PetCo has been taken private, the company's best comparables are are Target Corporation (NYSE:TGT) and Wal-Mart Stores, Inc. (NYSE:WMT). These are worthwhile comparisons because Target and Wal-Mart are two of the largest sellers of pet products by market share in the fast growing pet food and supply segment and therefore have a big impact on pet product price-setting. Target Corporation currently has a PEG ratio of 1.02 with a five year earnings growth forecast of 12% and Wal-Mart Stores has a PEG ratio of 1.26 with a five year earnings growth forecast of 11%. PetSmart is a little more expensive comparatively with a PEG ratio of 1.30 and a five year earnings growth forecast of 16%. Increased spending by pet owners will likely increase the company's revenue. This will allow PetSmart to maintain its stores better, improve advertising, and possibly increase the dividend. I expect to see the stock continue to climb upward, and rate it a buy at its current price.

Starbucks (SBUX): One month ago, this stock was trading around $48.04 per share and today it's at $48.32 per share. In the same time period the Nasdaq has risen from 2650 to 2905, a gain of 255 points. The stock is following a well established upward trend and is presently hitting new 52 week highs on a daily basis. In addition to this capital appreciation the company also pays a dividend of $.68 (annualized) which amounts to a dividend yield of about 1.4% at the stock's current price. The trailing twelve month price to earnings multiple on the stock is 28.93 on earnings of $1.67 per share-- compared to the sector average of 28.65. This implies investors are willing to pay a slight premium on the stock at this time.

In recent news the company just signed a deal with India's Tata Global Beverages Ltd. to open retail stores in the country under the Starbucks brand name. The company's ventures in China have succeeded and a similar success in India will represent increased growth prospects for the company. Starbucks competes with Dunkin' Brands Group, Inc. (NASDAQ:DNKN) and McDonald's Corporation (NYSE:MCD) in this sector. Dunkin' Brands currently has a PEG ratio of 2.09 and McDonald's has a PEG ratio of 1.79. Starbucks is relatively cheap with a PEG ratio of only 1.48. As discretionary spending increases, Starbucks will see an increase in sales of its fine coffee products. This will likely increase revenues, which should help the company put more money back into its stores and generate even higher sales. I see this stock as a good value at current prices, and rate it a buy.

Visa (NYSE:V): One month ago it was at $103.78 per share and today it's at $107.03 per share. In the same time period the S&P has risen from 1280 to 1325, a gain of 45 points. This stock is following a well established upward trend and is presently hitting new 52 week highs on a daily basis. On top of this capital appreciation the company also pays a dividend of $.88 (yearly) which amounts to a dividend yield of about 0.9% at the stock's current price. The trailing twelve month price to earnings multiple on the stock is 20.13 on earnings of $5.32 per share-- compared to the sector average of 20.28. This suggests investors are not yet willing to pay a premium on the stock.

The company's two closest competitors in this market are Discover Financial Services (NYSE:DFS) and Mastercard Incorporated (NYSE:MA). Discover Financial Services currently has a PEG ratio of .78 with a five year earnings growth forecast of 10.5% and Mastercard Incorporated currently has a PEG ratio of 1.10 with a five year earnings growth forecast of 16.1%. Visa similarly has a PEG ratio of 1.10 and a five year earnings growth forecast of 16.4%. I expect consumers will increase their credit card usage in the coming months as the economy moves on a slightly faster road to recovery. This increased spending will allow Visa to increase its income from dues and assessments. This would allow visa to put more money back into advertising, which will help boost sales even more. I believe the company's shares present a good value at current prices.

American Axle & Manufacturing Holdings (NYSE:AXL)): One month ago this stock was trading at $11.14 per share and today it's at $12.68 per share. The S&P has risen from 1280 to 1325 in the same time period, a gain of 45 points. The stock is coming out of a trough that brought it to its 52 week low of $6.77 per share in October of 2011, with enough momentum to carry it through all resistance levels except the $12.71 range. In recent news, the company's latest earnings report beat Wall Street estimates on higher than expected earnings per share and greater profit margins. The trailing twelve month price to earnings multiple on the stock is 6.50 on earnings of $1.95 per share-- compared to the sector average of 9.57. This implies investors are not yet willing to pay a premium on the stock.

The company's two top contenders in this sector are Dana Holding Corporation (NYSE:DAN) and Magna International, Inc. (NYSE:MGA). Dana Holding Corporation currently has a five year expected PEG ratio of .14 and Magna International currently has a five year expected PEG ratio of 1.10. American Axle & Manufacturing Holdings is moderately priced in comparison with a five year expected PEG ratio of .44. With increasing sales of vehicles in the US, American Axle is looking to diversify more of its offerings to companies beyond General Motors. Increased spending on vehicles will result in increased sales for American Axle, which equates to higher revenue. This would allow the company to put more money into diversification, and further boost its sales. I believe this stock perform extremely well in 2012, and I rate the company a buy at its current price levels.

American Express Company (NYSE:AXP): Looking back one month ago this stock was trading at $50.04 per share and today it's at $52.25 per share. In the same time period the Dow Jones Industrial Average has risen from 12300 to 12862, a gain of 562 points. The stock is moving in a slight upward trend with $49 as its mean and has a history of reverting to its mean so you may be able to pick the stock up cheaper at a later point in time. In addition to capital appreciation the company also pays a dividend of $.72 (annually) which amounts to a dividend yield of about 1.4% at the stock's current price. The trailing twelve month price to earnings multiple on the stock is 12.68 on earnings of $4.12 per share-- compared to the sector average of 11.53. Implying investors are willing to pay a slight premium on the stock.

The company's two closest competitors in this market are Discover Financial Services and Mastercard Incorporated . Discover Financial currently has a PEG ratio of .78 with a five year earnings growth forecast of 10.5% and Mastercard currently has a PEG ratio of 1.10 with a five year earnings growth forecast of 16.1%. American Express Company is moderately priced by comparison with a PEG ratio of 1.07 and a five year earnings growth forecast of 11.3%. As spending increases, consumers will likely begin to shift back to using credit cards. This will likely increase revenues by way of charges and fees, allowing the company to put more money back into advertising and marketing toward potential customers. This positive growth trend would excite investors, giving this stock a more bullish outlook. In my opinion, this stock presents a great value at current trading prices.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.