In the wake of one of the largest IPOs in history, investors may want to consider a few alternatives. I'm not arguing the fact that Facebook (FB) will be a dominant presence both in the mobile and social media marketplace, however some investors may want to wait until the dust settles before acquiring a position in the social networking behemoth. That being said, these four companies were recently upgraded by analysts and have very good long term potential.
Canadian Pacific (CP) - Founded in 1881 and based in Calgary, Alberta, Canada CP trades at a P/E ratio of 18.98 and yields 1.6% ($1.20), making the stock relatively affordable to most potential investors. On May 17th CP was upgraded by Barclays from an Equal Weight to an Over Weight and their price target was subsequently raised from $81 to $93.
One of the bright spots for CP in the short term is their recent naming of Stephen Tobias as interim CEO. As the former Chief Operations Officer of Norfolk Southern and the 2008 recipient of "Railroader of The Year", Mr. Tobias brings 40 years of experience to the table. Investors should establish a position prior to the company's second quarter earnings announcement, where the street expects CP to earn $1.10/share on revenues of $1.14 billion dollars. I think we could see a 5%-7% beat in EPS and a $0.20 - $0.30 billion dollar beat on the revenue side.
Chesapeake Midstream Partners (CHKM) - Founded in 2008 and based in Oklahoma City, Oklahoma CHKM trades at a P/E ratio of 15.70 and yields 6.8% ($1.62), making the stock very cheap by most standards. On May 17th CHKM was upgraded by Deutsche Bank from a Hold to a Buy. Deutsche Bank also adjusted their price target to $30/share.
After reporting a 35% increase in net income for the first quarter, CHKM also announced a 15% increase in its first quarter distribution when compare to same year ago period. The outlook is bright from CHKM especially at these levels. Investors should begin to establish a midsized position in CHKM as long as the share price stays below $25.
Cummins (CMI) - Founded in 1919 and headquartered in Columbus, Indiana CMI trades at a P/E ratio of 9.49 and yields 1.6% ($1.60) making the stock extremely cheap to potential investors. On May 17th Standpoint Research upgraded its rating on Cummins from a Hold to a Buy. The move comes about two weeks after CMI had yet another stellar quarter.
Investors should note that CMI has beaten street estimates by an average of 11.58% over the last four quarters. Trading in the middle of its 52-week range I'd be slightly cautious of acquiring anything other then a moderate position in CMI. Even though the fundamentals are pretty good, CMI has been off about 9% in the last 5 trading sessions and may continue to sell off over the next 3 to 4 sessions. If shares fall near the $90/share mark, I'd begin to see a very good buying opportunity.
Herbalife (HLF) - Founded in 1980 and based in the Cayman Islands, HLF trades at P/E ratio of 12.81 and currently yields 2.8% ($1.20). On May 17th Caris & Company upgraded Herbalife from Average to Buy and raised their price target from $39 to $86. When it comes to acquiring a position in Herbalife, investors need to pay very close attention to David Einhorn. Over the last two weeks, and after Mr. Einhorn questioned the company's financial position, we've seen the stock fall from $71 to its closing price on Thursday of $44.58. I think the 37% drop in stock price actually creates a buying opportunity for investors who may have thought $71/share was too expensive.
Over the last four quarters HLF has beaten EPS estimates by an average of 14.55%, and I strongly HLF will once again surpass street estimates during the second quarter. I'd suggest investors take advantage of HLF and acquire moderate positions, and as we get closer to the earnings release, build on that position.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.