Below, I have organized a list of ten stocks for second quarter treasure hunters as well as three special considerations that investors may want to consider adding to their watch list. They are primarily large-cap stocks that we feel are undervalued and have the potential for double digit returns in the next 12 months. In addition to the growth potential, all but one holding offers an upcoming quarterly dividend.
The list is broken into two separate segments, the first is focused on valuation and growth prospects with the second detailing the dividend details.
Company | Ticker | Current price | Price target | Discount to Price Target | Forward P/E | Beta |
Alcoa | $9.87 | $14.00 | 41.84% | 10.3 | 2.09 | |
Telefonica SA ADR | $15.47 | $22.00 | 42.21% | 7.7 | 0.97 | |
Halliburton | $33.10 | $45.00 | 35.95% | 7.4 | 1.57 | |
France Telecom | $13.92 | $19.00 | 36.49% | 8.0 | 0.77 | |
Thompson Reuters Corp | $28.33 | $37.00 | 30.60% | 12.7 | 0.94 | |
Peabody Energy | $29.62 | $38.00 | 28.29% | 6.7 | 1.44 | |
Allscripts - Misys H.S. | $16.40 | $21.00 | 28.05% | 12.9 | 1.44 | |
BHP Billiton | $70.87 | $89.00 | 25.58% | 8.5 | 1.50 | |
Emerson electric Co | $51.39 | $63.00 | 22.59% | 12.9 | 1.22 | |
Penn Virginia Resources | $22.95 | $28.00 | 22.00% | 14.7 | 0.79 | |
Average Totals | 29.19% |
Special Consideration
Company | Ticker | Current price | Price target | Discount to Price Target | Forward P/E | Beta |
WellPoint Inc | $71.75 | $85.00 | 18.47% | 8.4 | 0.98 | |
Staples | $16.07 | $19.00 | 18.23% | 9.8 | 0.90 | |
Senior Housing Properties | $22.25 | $25.00 | 12.36% | 19.4 | 1.03 |
As you can see, there is a broad mix of relatively inexpensive stocks (P/E) that offers long-term investors the chance for significant capital appreciation based on my targeted price for each company.
All of the companies maintain relatively high betas which initially may not be ideal for conservative investors, however adding some beta (with yield) can have an overall positive diversification effect on income oriented based on MPT.
In recent months names like Alcoa (AA), Peabody Energy (BTU) and Penn Virginia (PVR) have been hit by headline news and fluctuating commodity prices, particularly the latter two as legislative threats have surfaced, seeking to limit new coal factories in the future. Despite the near-term concerns, we feel commodities will do well later in the year and coal lobbyists will make sure no such legislation makes it way to the President's desk.
Dividend details
Company | Yield | Ex-Date | Est. Pay Date | YTD Return |
Alcoa | 1.22% | Mid May | Late May | 13.41% |
Telefonica SA ADR | 10.78% | Early May | Mid May | -8.96% |
Halliburton | 1.09% | Early June | Late June | -4.38 |
France Telecom | 9.74% | Early June | Early July | -9.90% |
Thompson Reuters Corp | 4.49% | Mid May | Mid June | 6.79% |
Peabody Energy | 1.20% | Mid May | Early June | -14.13% |
Allscripts - Misys H.S. | 0.00% | N/A | N/A | -13.46% |
BHP Billiton | 2.98% | Early Sept | Lat Sept | -0.99% |
Emerson Electric Co | 3.12% | Mid May | Mid June | 10.24% |
Penn Virginia Resources | 8.98% | Early May | Mid May | -11.05 |
Average Totals | 4.24% |
Special Consideration
Company | Yield | Record Date | Pay Date | YTD Return |
WellPoint Inc | 1.59% | Early June | Late June | 8.86% |
Staples | 2.74% | Late June | Mid July | 15.69% |
Senior Housing Properties | 6.85% | Early April | Early May | -1.16 |
Two of the three highest yielders, Telefonica (TEF) and France Telecom (FTE) have made their presence on many high yield lists, and as market leaders deservingly so. Both appear to have current free cash flow to support their dividends and with recessionary concerns continuing to bubble up in the Euro Zone this may be an ideal time to start averaging into a long-term position that will pay you to wait out their troubles.
Of the remaining names, Halliburton (HAL) offers treasure hunters an inexpensive entry point into oil and gas services, especially drilling. Thompson Reuters Corp (TRI) is a global information provider with increasing exposure to emerging markets that's trading on the cheap with a nice dividend for this sector and global exposure. BHP Billiton (BHP) is one of the world's largest miners who maintain a low-cost mining structure and diverse cash flow which can help insulate it from extreme commodity moves. We expect it, and our final name, Emerson Electric to surge later this year as Europe's recessionary environment and China recharge global growth. Emerson Electric is a solid industrial name with a growing focus on emerging markets which we think will help balance revenues which are currently overly dependent on the slower growth in the U.S.
Special considerations go to WellPoint (WLP), Staples (SPLS), and Senior Housing Trust (SNH) who don't offer as much upside by our valuations but may be poised for solid growth depending on the Supreme Court's ruling on Obamacare, the impact the new JOBS Act has on new business spending and hiring, and SNH would benefit from any continued positive trend in housing data.
These stocks offer varying trade-offs between growth, yield, and risk, however, at these price points and given a reasonable time frame, investors may want to consider establishing small positions that they can average into over the next few months.
Patience is recommended with these names. The start of earnings season next week should offer a good gauge as to whether now is the time to buy or if seasonality may make some of the names even cheaper.
I hope this list helps you unearth some real portfolio treasure.
Additional disclosure: Disclaimer: The above article has been written utilizing data from publicly available sources, which are believed to be reliable, and is provided for informational and educational purposes only. Investors should consider their personal situation and become intimately familiar with any investment, including its prospectus, before investing. Past performance and current yields are no guarantee of future results.
