The wise does at once what the fool does at last.
Baltasar Gracian
In our opinion, the following five companies are splendid long-term plays, but as the markets are extremely overbought, it would be prudent and wise for long-term investors to wait for a strong to decent pullback before committing large sums of money to this market. One might have to be patient as markets tend to overshoot to the upside and downside nowadays. There are two options for investors looking to open up additional streams of income.
- Investors can sell covered calls.
- If one is bullish on a stock, one can sell naked puts and open an additional stream of income. For example, if you like Clarcor (CLC) but only find it attractive in the 44-46 ranges, you could sell puts with a strike at 45. If the stock trades below this price on the last day, you will have to buy the stock. However, your final price will be much lower, as you would subtract the premium you received from the price you paid for the shares. On the other hand, if the stock does not close below this price, then you get to keep the premium.
Clarcor Inc. (CLC) is our play of choice for the following reasons:
- Net income has increased from $72 million in 2009 to $124 million in 2011
- EBITDA increased by 54% from $139 million in 2009 to $214 million in 2001
- Cash flow per share surged by 52% from $2.04 in 2009 to $3.11 in 2011
- It has positive levered free cash flow of $88 million
- A good ROE of 15.17%
- Annual EPS before NRI increased from $1.78 in 2007 to $2.42 in 2011
- It has a good current and quick ratio of 3.75 and 2.5 respectively.
- Its interest coverage ratio of 460 is simply superb.
- It boasts a very good payout ratio of only 20% and a 5 year average of just 21%
- It has consecutively increased dividends for 45 years and it's been paying dividends since 1920
- It sports a strong 5 year dividend growth rate of 9.9%
- A total 3 year returns of 121%
- A great long term debt to equity ratio of 0.02
- Operating income has increased $105 in 2009 to $181 in 2011
- It has a strong balance sheet; cash and cash equivalents have increased from $61 million in 2009 to $157 million in 2011
- Gross profits increased from $279 million in 2009 to $384 million in 2011
- It has quarterly earnings growth rate of 28%
- A decent quarterly revenue growth rate of 11%
- 100K invested for 10 years would have grown to 391K
Clarcor Inc.
Industry : Industrial Machinery & Equipment
Levered Free Cash Flow: 88.48M
Net income for the past three years
Net Income 2009 = $72 million
Net Income 2010 = $96 million
Net Income 2011 = $124 million
EBITDA 12/2011 = $214 million
EBITDA 12/2010 = $175 million
EBITDA 12/2009 = $139 million
Net income Reported Quarterly = $371 million
Total cash flow from operating activities
2009 = $113.7 million
2010 = $143.41 million
2011 = $119.45 million
Cash Flow 12/2011 = 3.11 $/share
Cash Flow 12/2010 = 2.52 $/share
Cash Flow 12/2009 = 2.04 $/share
Annual EPS before NRI 12/2011 = 2.42
Annual EPS before NRI 12/2010 = 1.88
Annual EPS before NRI 12/2009 = 1.4
Annual EPS before NRI 12/2008 = 1.91
Annual EPS before NRI 12/2007 = 1.78
ROE = 15.17%
Return on Assets = 11.24%
Quarterly Earnings Growth = 28.4%
Quarterly Revenue Growth = 11.6%
Key Ratios
Price to Sales = 2.3
Price to Book = 3.1
Price to Tangible Book = 5.18
Price to Cash Flow = 16.58
Price to Free Cash Flow = 44.8
Current Ratio 09/2011 = 3.75
Current Ratio 5 Year Average = 3.24
Quick Ratio = 2.5
Cash Ratio = 1.19
Interest Coverage 09/2011 = 460.08
Payout Ratio 09/2011 = 0.2
Payout Ratio 06/2011 = 0.19
Payout Ratio 5 Year Average 12/2011 = 0.21
Payout Ratio 5 Year Average 09/2011 = 0.21
Payout Ratio 5 Year Average 06/2011 = 0.21
Change in Payout Ratio = -0.01
Dividend yield 5 year average = 1%
Dividend growth rate 3 year average = 9.8%
Dividend growth rate 5 year average = 9.96%
Consecutive dividend increases = 45 years
Paying dividends since = 1921
Emerson Electric Co. (EMR)
Industry : Electrical Equipment
Levered Free Cash Flow: 2.64B
Net income for the past three years
Net Income 2009 = $1724 million
Net Income 2010 = $2164 million
Net Income 2011 = $2480 million
EBITDA 12/2011 = $4721 million
EBITDA 12/2010 = $3956 million
EBITDA 12/2009 = $3397 million
Net income Reported Quarterly = $371 million
Total cash flow from operating activities
2009 = $3.09 billion
2010 = $3.3 billion
2011 = $3.24 billion
Cash Flow 12/2011 = 4.46 $/share
Cash Flow 12/2010 = 3.8 $/share
Cash Flow 12/2009 = 3.26 $/share
Annual EPS before NRI 12/2011 = 3.24
Annual EPS before NRI 12/2010 = 2.69
Annual EPS before NRI 12/2009 = 2.27
Annual EPS before NRI 12/2008 = 3.11
Annual EPS before NRI 12/2007 = 2.66
ROE = 21.97%
Return on Assets = 9.88%
Quarterly Earnings Growth = -22.7%
Quarterly Revenue Growth = -4.1%
Key Ratios
Price to Sales = 1.59
Price to Book = 3.7
Price to Tangible Book = -89.65
Price to Cash Flow = 11.66
Price to Free Cash Flow = 27.5
Current Ratio 09/2011 = 1.39
Current Ratio 5 Year Average = 1.43
Quick Ratio = 1.12
Cash Ratio = 0.42
Interest Coverage 09/2011 = 10.53
Payout Ratio 09/2011 = 0.51
Payout Ratio 06/2011 = 0.43
Payout Ratio 5 Year average 09/2011 = 0.47
Payout Ratio 5 Year average 06/2011 = 0.47
Change in Payout Ratio = 0.05
Dividend yield 5 year average = 3%
Dividend growth rate 3 year average = 5.79%
Dividend growth rate 5 year average = 9.07%
Consecutive dividend increases = 55 years
Paying dividends since = 1947
Total return last 3 years = 109.47%
Total return last 5 years = 38.16%
Genuine Parts Co. (GPC)
Industry : Retail - General Merchandise/Department Stores
Levered Free Cash Flow: 468.18M
Net income for the past three years
Net Income 2009 = $400 million
Net Income 2010 = $476 million
Net Income 2011 = $565 million
EBITDA 12/2011 = $1007 million
EBITDA 12/2010 = $879 million
EBITDA 12/2009 = $762 million
Net income Reported Quarterly = $371 million
Total cash flow from operating activities
2009 = $845.3 million
2010 = $678.67 million
2011 = $624.93 million
Cash Flow 12/2011 = 4.2 $/share
Cash Flow 12/2010 = 3.59 $/share
Cash Flow 12/2009 = 3.07 $/share
Annual EPS before NRI 12/2011 = 3.58
Annual EPS before NRI 12/2010 = 3
Annual EPS before NRI 12/2009 = 2.5
Annual EPS before NRI 12/2008 = 2.92
Annual EPS before NRI 12/2007 = 2.98
ROE = 19.67%
Return on Assets = 9.85%
Quarterly Earnings Growth = 13.7%
Quarterly Revenue Growth = 7.4%
Key Ratios
Price to Sales = 0.79
Price to Book = 3.54
Price to Tangible Book = 3.95
Price to Cash Flow = 15.1
Price to Free Cash Flow = 91.4
Current Ratio 09/2011 = 2.53
Current Ratio 5 Year Average = 2.66
Quick Ratio = 1.28
Cash Ratio = 0.47
Interest Coverage 09/2011 = 8.78
Payout Ratio 09/2011 = 0.5
Payout Ratio 06/2011 = 0.52
Payout Ratio 5 Year Average 09/2011 = 0.55
Payout Ratio 5 Year Average 06/2011 = 0.55
Change in Payout Ratio = -0.05
Dividend yield 5 year average = 3.9%
Dividend growth rate 3 year average = 5.57%
Dividend growth rate 5 year average = 6.05%
Consecutive dividend increases = 55 years
Paying dividends since = 1948
Total return last 3 years = 148.53%
Total return last 5 years = 47.06%
Illinois Tool Works, Inc. (ITW)
Industry : Industrial Machinery & Equipment
Levered Free Cash Flow: 770.13M
Net income for the past three years
Net Income 2009 = $973 million
Net Income 2010 = $1503 million
Net Income 2011 = $2071 million
EBITDA 12/2011 = $3379 million
EBITDA 12/2010 = $2813 million
EBITDA 12/2009 = $2063 million
Net income Reported Quarterly = $371 million
Total cash flow from operating activities
2009 = $2.17 billion
2010 = $1.49 billion
2011 = $1.96 billion
Cash Flow 12/2011 = 5.4 $/share
Cash Flow 12/2010 = 4.19 $/share
Cash Flow 12/2009 = 3.56 $/share
Annual EPS before NRI 12/2011 = 4.08
Annual EPS before NRI 12/2010 = 3.03
Annual EPS before NRI 12/2009 = 2.19
Annual EPS before NRI 12/2008 = 3.04
Annual EPS before NRI 12/2007 = 3.28
ROE = 18.38%
Return on Assets = 10.31%
Key Ratios
Price to Sales = 1.56
Price to Book = 2.79
Price to Tangible Book = 10.82
Price to Cash Flow = 10.71
Price to Free Cash Flow = -76.9
Current Ratio 09/2011 = 2.3
Current Ratio 5 Year Average = 1.93
Quick Ratio = 1.73
Cash Ratio = 0.78
Interest Coverage 09/2011 = 11.66
Payout Ratio 09/2011 = 0.38
Payout Ratio 06/2011 = 0.39
Payout Ratio 5 Year Average 09/2011 = 0.43
Payout Ratio 5 Year Average 06/2011 = 0.43
Change in Payout Ratio = -0.05
Dividend yield 5 year average = 2.8%
Dividend growth rate 3 year average = 5.87%
Dividend growth rate 5 year average = 13.74%
Consecutive dividend increases = 49 years
Paying dividends since = 1933
Total return last 3 years = 123.27%
Total return last 5 years = 28.86%
Stanley Black & Decker, Inc. (SWK)
Industry : Industrial Machinery & Equipment
Levered Free Cash Flow: 868.01M
Net income for the past three years
Net Income 2009 = $224 million
Net Income 2010 = $198 million
Net Income 2011 = $675 million
EBITDA 12/2011 = $1330 million
EBITDA 12/2010 = $698 million
EBITDA 12/2009 = $546 million
Net income Reported Quarterly = $371 million
Total cash flow from operating activities
2010 = $536.8 million
2011 = $739.3 million
2011 = $998.9 million
Cash Flow 12/2011 = 7.7 $/share
Cash Flow 12/2010 = 5.83 $/share
Cash Flow 12/2009 = 5.29 $/share
Annual EPS before NRI 12/2011 = 5.24
Annual EPS before NRI 12/2010 = 4.12
Annual EPS before NRI 12/2009 = 2.8
Annual EPS before NRI 12/2008 = 3.41
Annual EPS before NRI 12/2007 = 4.13
ROE = 11.6%
Return on Assets = 5.26%
Key Ratios
Price to Sales = 1.33
Price to Book = 1.94
Price to Tangible Book = -4.57
Price to Cash Flow = 10.56
Price to Free Cash Flow = -18.9
Current Ratio 09/2011 = 1.32
Current Ratio 5 Year Average = 1.39
Quick Ratio = 0.88
Cash Ratio = 0.41
Interest Coverage 09/2011 = 20.01
Payout Ratio 09/2011 = 0.33
Payout Ratio 06/2011 = 0.35
Payout Ratio 5 Year Average 09/2011 = 0.37
Payout Ratio 5 Year Average 06/2011 = 0.37
Change in Payout Ratio = -0.03
Dividend yield 5 year average = 2.7%
Dividend growth rate 3 year average = 9.01%
Dividend growth rate 5 year average = 6.73%
Consecutive dividend increases = 44 years
Paying dividends since = 1877
Total return last 3 years = 218.39%
Total return last 5 years = 62.51%
EPS, EPS surprise, broker recommendations, and price and consensus charts sourced from zacks.com. Earning's estimates and growth rate charts sourced from dailyfinance.com. Free cash flow yield, income from cont operations, and revenue growth sourced from Ycharts.com. Earning Vs expectations from Smartmoney.com
Disclaimer:This list of stocks is meant to serve as a starting point. Please do not treat this as a buying list. It is imperative that you do your due diligence and then determine if any of the above plays meet with your risk tolerance levels. The Latin maxim caveat emptor applies-let the buyer beware.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
