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"Speak when you are angry - and you'll make the best speech you'll ever regret."

Laurence Peter

The markets are extremely overbought, and it would be prudent for long-term investors to wait for a strong pullback before committing large sums of money to this market. Investors looking for additional streams of income can consider the following two options.

  1. Sell covered calls.
  2. If you are bullish on the stock sell naked put options. 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.

Companhia de saneamento Basico (SBS) is our play of choice for the following reasons:

It is one of the world's largest water and sewer providers, and the nature of its business means that it will continue to generate steady streams of income for years to come.

It's long-term prospects are bright as it has set a target of providing roughly 1.3 million new water connects and 1.7 new sewage connections by 2019.

  • A decent levered free cash flow of $101 million.
  • Net income increased from $27.8 million in 2008 to $931 million in 2010. The company has not yet reported net income for 2011.
  • Cash flow per share jumped from $8.63 in 2009 to $10.94 in 2010.
  • Annual EPS before NRI increased from $4.74 in 2007 to $8.18 in 2010.
  • Cash flow from operating activities has increased from $1.08 billion in 2008 to $1.24 billion in 2010.
  • It sports a fair current and quick ratio of 1.23 and 1.01.
  • A decent interest coverage ratio of 4.5.
  • It sports a decent quarterly earnings growth rate of 10%.
  • A five-year sales growth rate of 12%.
  • Gross profit increased from $1.5 billion in 2008 to $2.43 billion in 2011.
  • Cash And Cash Equivalents surged from $268 million in 2008 to $1.38 billion in 2010.
  • Total Assets increased from $8.6 billion in 2008 to $14 billion in 2010.
  • It has a very strong free cash flow yield of 26.3%.

Company: Companhia de saneamento Basico

Levered Free Cash Flow = 101.53M

Basic Key ratios

Percentage Held by Insiders = 1

Market Cap ($mil) = 8439

Growth

  1. Net Income ($mil) 12/2011 = N/A
  2. Net Income ($mil) 12/2010 = 931
  3. Net Income ($mil) 12/2009 = 698
  4. 12 months Net Income this Quarterly/ 12months Net Income 4Q's ago = -9.33
  5. Quarterly Net Income this Quarterly/ same Quarter year ago = -83.76
  1. EBITDA ($mil) 12/2011 = N/A
  2. EBITDA ($mil) 12/2010 = 1624
  3. EBITDA ($mil) 12/2009 = 1270
  4. Net Income Reported Quarterlytr ($mil) = 42
  5. Annual Net Income this Yr/ Net Income last Yr = 33.31
  6. Cash Flow ($/share) 12/2011 = N/A
  7. Cash Flow ($/share) 12/2010 = 10.94
  8. Cash Flow ($/share) 12/2009 = 8.63
  1. Sales ($mil) 12/2011 = N/A
  2. Sales ($mil) 12/2010 = 5271
  3. Sales ($mil) 12/2009 = 3419
  1. Annual EPS before NRI 12/2007 = 4.74
  2. Annual EPS before NRI 12/2008 = 3.82
  3. Annual EPS before NRI 12/2009 = 6.12
  4. Annual EPS before NRI 12/2010 = 8.18
  5. Annual EPS before NRI 12/2011 = N/A

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = 27.35
  2. Next 3-5 Year Estimate EPS Growth rate = 5.15
  3. EPS Growth Quarterly(1)/Q(-3) = 188.08
  4. ROE 5 Year Average 06/2011 = 12.03
  5. Debt/Total Cap 5 Year Average 06/2011 = 33.95
  1. Current Ratio =1.23
  2. Current Ratio 5 Year Average = 0.91
  3. Quick Ratio = 1.01
  4. Cash Ratio = 0.72
  5. Interest Coverage =4.5

Valuation

  1. Book Value Quarterly = 56.02
  2. Price/ Book = 1.32
  3. Price/ Cash Flow = 6.77
  4. Price/ Sales = 1.44
  5. EV/EBITDA 12 Mo = 7.2

Notes

The Board of Executive Officers proposed and the Board of Directors resolved on, pursuant to item XI of article 14, and paragraph 1 of article 29 of the Company's Bylaws, the payment of dividends in the form of interest on own capital related to the period from January to December 2011, to the Shareholders registered as such on February 16, 2012. The dividends as interest on own capital, totaling R$578,705,022.42 corresponding to R$ 2.54 per common share will be paid no later than 60 days after the 2012 Annual Shareholders' Meeting.

This plays would fall under the category of good-great.

Company: Mercury General Corporation Com (MCY)

Levered Free Cash Flow = 868.48M

Basic Key ratios

Percentage Held by Insiders = 34.7

Market Cap ($mil) = 2374

Growth

  1. Net Income ($mil) 12/2011 = 191
  2. Net Income ($mil) 12/2010 = 152
  3. Net Income ($mil) 12/2009 = 403
  4. 12 months Net Income this Quarterly/12 months Net Income 4Q's ago = 25.6
  5. Quarterly Net Income this Quarterly/same Quarter year ago = 436.06
  1. EBITDA ($mil) 12/2011 = 296
  2. EBITDA ($mil) 12/2010 = 231
  3. EBITDA ($mil) 12/2009 = 621
  4. Net Income Reported Quarterlytr ($mil) = 79
  5. Annual Net Income this Yr/ Net Income last Yr = 25.61
  6. Cash Flow ($/share) 12/2011 = 3.62
  7. Cash Flow ($/share) 12/2010 = 2.86
  8. Cash Flow ($/share) 12/2009 = 4.02
  1. Sales ($mil) 12/2011 = 2777
  2. Sales ($mil) 12/2010 = 2776
  3. Sales ($mil) 12/2009 = 3121
  1. Annual EPS before NRI 12/2007 = 4.09
  2. Annual EPS before NRI 12/2008 = 2.12
  3. Annual EPS before NRI 12/2009 = 3.23
  4. Annual EPS before NRI 12/2010 = 2.1
  5. Annual EPS before NRI 12/2011 = 2.79

Dividend history

  1. Dividend Yield = 5.64
  2. Dividend Yield 5 Year Average = 5.2%
  3. Annual Dividend 12/2011 = 2.41
  4. Annual Dividend 12/2010 = 2.37
  5. Forward Yield = 5.64
  6. Dividend 5 year Growth = 15.21%

Dividend sustainability

  1. Payout Ratio 06/2011 = 0.88
  2. Payout Ratio 5 Year Average 06/2011 = 0.86
  3. Change in Payout Ratio = 0.02

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = 5.11
  2. Next 3-5 Year Estimate EPS Growth rate = 2.11
  3. EPS Growth Quarterly(1)/Q(-3) = 4-193.33
  4. ROE 5 Year Average 06/2011 = 9.17
  5. Return on Investment 06/2011 = 7.53
  6. Debt/Total Cap 5 Year Average 06/2011 = 8.26
  1. Current Ratio 06/2011 = 0.41
  2. Current Ratio 5 Year Average = 0.48
  3. Quick Ratio = 0.41
  4. Cash Ratio = 0.23
  5. Interest Coverage Quarterly = 122.63

Valuation

  1. Book Value Quarterly = 33.87
  2. Price/ Book = 1.28
  3. Price/ Cash Flow = 11.95
  4. Price/ Sales = 0.86
  5. EV/EBITDA 12 Mo = 6.98

Notes

It would fall in the range of Average to good.

Company: Spectra Energy Partners L.P. (SEP)

Levered Free Cash Flow = -16.81M

Basic Key ratios

Market Cap ($mil) = 3084

Growth

  1. Net Income ($mil) 12/2011 = 172
  2. Net Income ($mil) 12/2010 = 148
  3. Net Income ($mil) 12/2009 = 136
  4. 12months Net Income this Quarterly/ 12months Net Income 4Q's ago = 16.3
  5. Quarterly Net Income this Quarterly/ same Quarter year ago = 12.9
  1. EBITDA ($mil) 12/2011 = 231
  2. EBITDA ($mil) 12/2010 = 193
  3. EBITDA ($mil) 12/2009 = 182
  4. Net Income Reported Quarterlytr ($mil) = 42
  5. Annual Net Income this Yr/ Net Income last Yr = 16.3
  6. Cash Flow ($/share) 12/2011 = 2.13
  7. Cash Flow ($/share) 12/2010 = 2
  8. Cash Flow ($/share) 12/2009 = 2.8
  1. Sales ($mil) 12/2011 = 205
  2. Sales ($mil) 12/2010 = 198
  3. Sales ($mil) 12/2009 = 179
  1. Annual EPS before NRI 12/2007 = -0.95
  2. Annual EPS before NRI 12/2008 = 1.35
  3. Annual EPS before NRI 12/2009 = 1.71
  4. Annual EPS before NRI 12/2010 = 1.7
  5. Annual EPS before NRI 12/2011 = 1.63

Dividend history

Dividend Yield = 5.94

Dividend Yield 5 Year Average =5.7%

Annual Dividend 12/2011 = 1.85

Annual Dividend 12/2010 = 1.7

Forward Yield = 5.94

Dividend 3 year Growth = 10.68%

Dividend sustainability

  1. Payout Ratio 06/2011 = 1.15
  2. Payout Ratio 5 Year Average 06/2011 = 1.02
  3. Change in Payout Ratio = 0.12

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = -7.04
  2. Next 3-5 Year Estimate EPS Growth rate = 5
  3. EPS Growth Quarterly(1)/Q(-3) = 107.32
  4. ROE 5 Year Average 06/2011 = 11.29
  5. Return on Investment 06/2011 = 7.57
  6. Debt/Total Cap 5 Year Average 06/2011 = 25.04
  7. Current Ratio 06/2011 = 0.17
  8. Current Ratio 5 Year Average = 1.5
  9. Quick Ratio = 0.14
  10. Cash Ratio = 0.02
  11. Interest Coverage Quarterly = 6.42

Valuation

  1. Book Value Quarterly = 17.62
  2. Price/ Book = 1.82
  3. Price/ Cash Flow = 15.03
  4. Price/ Sales = 15.05
  5. EV/EBITDA 12 Mo = 15.49

Notes

It falls under the category of "good".

Company: United Microelectronics Corporation UMC

Levered Free Cash Flow = -746.54M

Basic Key ratios

  1. Percentage Held by Insiders = 8
  2. Market Cap ($mil) = 6666

Growth

  1. Net Income ($mil) 12/2011 = 357
  2. Net Income ($mil) 12/2010 = 822
  3. Net Income ($mil) 12/2009 = 52
  4. 12months Net Income this Quarterly/12months Net Income 4Q's ago = -52.7
  5. Quarterly Net Income this Quarterly/ same Quarter year ago = -82.35
  1. EBITDA ($mil) 12/2010 = 1917
  2. EBITDA ($mil) 12/2009 = 1120
  3. Net Income Reported Quarterlytr ($mil) = 39
  4. Annual Net Income this Yr/ Net Income last Yr = -56.57
  5. Cash Flow ($/share) 12/2010 = 0.75
  6. Cash Flow ($/share) 12/2009 = 0.46
  1. Sales ($mil) 12/2011 = 3499
  2. Sales ($mil) 12/2010 = 4141
  3. Sales ($mil) 12/2009 = 2771
  1. Annual EPS before NRI 12/2007 = 0.16
  2. Annual EPS before NRI 12/2008 = -0.04
  3. Annual EPS before NRI 12/2009 = 0.05
  4. Annual EPS before NRI 12/2010 = 0.33
  5. Annual EPS before NRI 12/2011 = 0.14

Dividend history

  1. Dividend Yield = 5.39
  2. Annual Dividend 12/2011 = 0.14
  3. Annual Dividend 12/2010 = 0.06
  4. Forward Yield = 5.38

Dividend sustainability

  1. Payout Ratio 06/2011 = 1.02
  2. Payout Ratio 5 Year Average 06/2011 = 0.52
  3. Change in Payout Ratio = 0.51

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = -8.38
  2. Next 3-5 Year Estimate EPS Growth rate = 20
  3. EPS Growth Quarterly(1)/Q(-3) = 188.89
  4. ROE 5 Year Average 06/2011 = 5.1
  5. Return on Investment 06/2011 = 4.88
  6. Debt/Total Cap 5 Year Average 06/2011 = 3.13
  1. Current Ratio 06/2011 = 1.91
  2. Current Ratio 5 Year Average = 2.58
  3. Quick Ratio = 1.58
  4. Cash Ratio = 1.58
  5. Interest Coverage = 177

Valuation

  1. Book Value Quarterly = 2.74
  2. Price/ Book = 0.97
  3. Price/ Cash Flow = 3.57
  4. Price/ Sales = 1.87
  5. EV/EBITDA 12 Mo = 3.21

Notes

It would under the category of Average or below; $100K invested for 10 years shrunk to $42.8K.

Company: Xylem Inc. Common Stock New (XYL)

Levered Free Cash Flow = 361.75M

Growth

  1. Net Income ($mil) 12/2011 = 279
  2. Net Income ($mil) 12/2010 = 329
  3. Net Income ($mil) 12/2009 = 263
  4. 12months Net Income this Quarterly/ 12months Net Income 4Q's ago = -15.2
  5. Quarterly Net Income this Quarterly/ same Quarter year ago = -46.39
  1. EBITDA ($mil) 12/2011 = 537
  2. EBITDA ($mil) 12/2010 = 480
  3. EBITDA ($mil) 12/2009 = 347
  4. Net Income Reported Quarterlytr ($mil) = 52
  5. Annual Net Income this Yr/ Net Income last Yr = -15.2
  6. Cash Flow ($/share) 12/2011 = 2.69
  1. Sales ($mil) 12/2011 = 3803
  2. Sales ($mil) 12/2010 = 3202
  3. Sales ($mil) 12/2009 = 2849
  1. Annual EPS before NRI 12/2010 = 1.48
  2. Annual EPS before NRI 12/2011 = 1.93

Dividend history

  1. Dividend Yield = 1.49
  2. Annual Dividend 12/2011 = 0.1
  3. Annual Dividend 12/2010 = 0
  4. Forward Yield = 1.49

Dividend sustainability

Payout Ratio 06/2011 = 0.05

Performance

  1. EPS Growth Quarterly(1)/Q(-3) = -105.26
  2. Return on Investment 06/2011 = 11.58
  1. Current Ratio 06/2011 = 2.01
  2. Quick Ratio = 1.49
  3. Cash Ratio = 0.56
  4. Interest Coverage Quarterly = 83

Valuation

  1. Book Value Quarterly = 9.9
  2. Price/ Book = 2.75
  3. Price/ Cash Flow = 10.13
  4. Price/ Sales = 1.31
  5. EV/EBITDA 12 Mo = 11.01

Notes

It would fall under the category of good, but we would like to add that only investors willing to take on a bit of extra risk should consider this play.

EPS, EPS surprise, broker recommendations and price and consensus charts sourced from zacks.com. Earnings estimates and growth rate charts sourced from dailyfinance.com. Free cash flow yield, income from cont operations, and revenue growth sourced from Ycharts.com.

Source: Analyzing 5 Growth Plays: 2 Good And 3 To Take Or Leave On The Table

Additional disclosure: 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.