After last week's market decline investors should be doing some bargain hunting. That being said, current valuations suggest Texas Instruments (TXN) is fairly valued, ConocoPhillips (COP) is undervalued and investors should take profits on Altria (MO).
ConocoPhillips - Undervalued
- Profits are strongly correlated with the strength of the economy.
- Sector possesses high barriers to entry and minimal competition, although, pricing power is weak.
- Historically, the energy industry creates value for investors.
- Rising revenue and cash flow from operating activity and declining price/sales and price/operating cash flow.
- Decreasing unemployment favors inflationary macro-economic conditions over the next decade.
- Shares declined to the just about the 200-day simple moving average and could find trend-line support. The 50-day simple moving average is rising.
- Conocco Phillips is 12 percent cheaper on a price-sales basis & 21 percent on a price to operating income basis than the end of February.
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Texas Instruments - Fairly Valued
- The analog chips industry is fragmented; notwithstanding, the firms have strong pricing power.
- Historically, the semiconductor industry has created value for investors.
- The industry is mature with high barriers to entry and low growth.
- Economic growth is strongly correlated with earnings.
- Insiders sold the stock heavily at the end of January.
- Revenue/share and Cash flow from operations/share are declining.
- Shares are probably being distributed as the 50-day simple moving average flattened.
- Skillful traders may be able to short-sell this stock for a handsome profit.
- Texas Instruments is 7 percent cheaper on a price-sales and price-cash flow from operations basis than the beginning of February. If the share price declines 7 - 10 percent investors should accumulate shares.
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Altria - Overvalued (Sell)
- Tobacco is a concentrated industry with strong pricing power.
- The industry is mature with little to no growth and high barriers to entry.
- Revenue (TTM)/share increased the last few quarters to Q4 2010 levels.
- Book value/share has declined since the start of 2011.
- Price/sales and price/book value have increased as share price has risen.
- Valuations are nearing peaks as fundamentals aren't confirming the rise in share price.
- Share are trading above the rising 50-day moving average in the markup phase which comes before a period of distribution.
- Historically, tobacco enterprises have been one the best creators of value for investors.
- Altria is 35 percent on a price-book value and 12 percent on a price-sales basis more expensive than the beginning of the year.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
