In the learning to fish series, we provide investors with suggested guidelines for choosing a potential candidate and one candidate is selected as our play of choice. We provide reasons for this choice and in doing so hope to impart some understanding to those who are new to the field of investing. It is important that readers take the time to read and understand the selection process involved in coming up with these picks. This information can be obtained here: "Our suggested guidelines when searching for new investment ideas." We will list one stock that meets all or most of the suggested criteria but we will also list plays that do not fulfill the stated criteria as examples of what investors should generally shy away from, unless they are willing to take on a bit of extra risk.
Reasons to consider Visa Inc (V):
- A huge levered free cash flow of $2.46 billion
- A strong Quarterly earnings growth rate of 46%
- A decent quarterly revenue growth rate of 14%
- A long-term debt to equity ratio of 0.00
- An incredibly strong interest coverage ratio of 162
- A good current and quick ratio of 2.8 and 2.6 respectively
- A projected 3-5 year EPS growth rate of 16.43%
- Year over year projected growth rates of 21.6% and 16.2% for 2012 and 2013 respectively
- It has consecutively increased dividends for 3 years.
- A good three year total return of 94%
- Cash flow per share has risen from $4.34 in 2009 to $6.37 in 2011
- Net income increased from $2.3 billion in 2009 to $3.6 billion in 2011
- Sales increased from $6.9 billion in 2009 to $9.1 billion in 2011
- Annual EPS before NRI has increased from in 2008 $2.25 to $4.99 in 2009
- A very low payout ratio of 15%
- A 5 year dividend growth rate of 30%
Suggested strategy
As the markets are poised for some sort of relief rally the following strategies can be implemented. The first strategy is a short term one - long-term investors can skip this one and focus on the next one.
Wait for a test of the 109-110 ranges and then open up positions. Close these positions out at 123 or better as the relief rally will most likely fail and drive the markets to new lows before a bottom is in place. This strategy carries a bit more of risk as it is a short-term strategy, so only traders willing to take on a bit of extra risk should consider it. If you implement this strategy, you can redeploy your money by following the strategy below.
Strategy two
Wait for a test of the 100-102 ranges and then consider deploying money into Visa. We would divide the money into 2-3 lots and deploy one lot at a time as stocks tend to shoot to the upside and downside. One other option is to sell puts if and when Visa tests trades in the 100-102 ranges at strikes you would not mind owning shares in this company at. You can adjust this strategy to suit your needs.
Company: Visa Inc-A
Levered Free Cash Flow = $2.46B
Growth
- Net Income ($mil) 12/2011 = 3650
- Net Income ($mil) 12/2010 = 2966
- Net Income ($mil) 12/2009 = 2353
- EBITDA ($mil) 12/2011 = 7856
- EBITDA ($mil) 12/2010 = 6535
- EBITDA ($mil) 12/2009 = 5575
- Cash Flow ($/share) 12/2011 = 6.97
- Cash Flow ($/share) 12/2010 = 5.65
- Cash Flow ($/share) 12/2009 = 4.34
- Sales ($mil) 12/2011 = 9188
- Sales ($mil) 12/2010 = 8065
- Sales ($mil) 12/2009 = 6911
- Annual EPS before NRI 12/2008 = 2.25
- Annual EPS before NRI 12/2009 = 2.92
- Annual EPS before NRI 12/2010 = 3.91
- Annual EPS before NRI 12/2011 = 4.99
Dividend history
- Dividend Yield = 0.8
- Dividend 3 year Growth =30%
Dividend sustainability
- Payout Ratio 06/2011 = 0.17
- Payout Ratio 5 Year Average 06/2011 = 0.15
Performance
- Next 3-5 Year Estimate EPS Growth rate = 16.43
- ROE 5 Year Average = 11.12
- Current Ratio = 2.82
- Quick Ratio = 2.66
- Cash Ratio = 2.38
- Interest Coverage Quarterly = 162.7
Other interesting companies
For investors looking for other investment ideas, detailed data has been provided on two additional companies. Investors can draw some ideas from our latest article: American Capital Agency 1 Of 3 Candidates To Consider.
Company: Terra Nitrogen (TNH)
Basic Key ratios
- Relative Strength 52 weeks = 96
- Cash Flow 5 -year Average = 13.26
Growth
- Net Income ($mil) 12/2011 = 508
- Net Income ($mil) 12/2010 = 202
- Net Income ($mil) 12/2009 = 144
- EBITDA ($mil) 12/2011 = 528
- EBITDA ($mil) 12/2010 = 219
- EBITDA ($mil) 12/2009 = 161
- Cash Flow ($/share) 12/2011 = 29.1
- Cash Flow ($/share) 12/2010 = 11.83
- Cash Flow ($/share) 12/2009 = 8.69
- Sales ($mil) 12/2011 = 799
- Sales ($mil) 12/2010 = 565
- Sales ($mil) 12/2009 = 508
- Annual EPS before NRI 12/2007 = 10.9
- Annual EPS before NRI 12/2008 = 14.9
- Annual EPS before NRI 12/2009 = 5.4
- Annual EPS before NRI 12/2010 = 8.02
- Annual EPS before NRI 12/2011 = 15.9
Dividend history
- Dividend Yield = 8.10
- Dividend Yield 5 Year Average = 8.55
- Dividend 5 year Growth = 2.59
- Payout Ratio 1.08
- Payout Ratio 5 Year Average = 0.99
Performance
- Next 3-5 Year Estimate EPS Growth rate = N/A
- 5 Year History EPS Growth 12/2011 = 3.21
- ROE 5 Year Average 12/2011 = 132.33
- Current Ratio 12/2011 = 4.63
- Current Ratio 5 Year Average = 3.44
- Quick Ratio = 6.22
- Cash Ratio = 6.2
- Interest Coverage Quarterly = N/A
Company: Regions Financial Cp (RF)
Growth
- Net Income ($mil) 12/2011 = -429
- Net Income ($mil) 12/2010 = -763
- Net Income ($mil) 12/2009 = -1261
- EBITDA ($mil) 12/2011 = 1959
- EBITDA ($mil) 12/2010 = 381
- EBITDA ($mil) 12/2009 = -34
- Cash Flow ($/share) 12/2011 = 1.47
- Cash Flow ($/share) 12/2010 = 0.31
- Cash Flow ($/share) 12/2009 = -0.42
- Sales ($mil) 12/2011 = 6395
- Sales ($mil) 12/2010 = 8220
- Sales ($mil) 12/2009 = 9087
- Annual EPS before NRI 12/2007 = 1.96
- Annual EPS before NRI 12/2008 = 0.74
- Annual EPS before NRI 12/2009 = -1.27
- Annual EPS before NRI 12/2010 = -0.46
- Annual EPS before NRI 12/2011 = 0.17
Dividend history
- Dividend Yield = 0.60
- Dividend Yield 5 Year Average = 2.7
- Dividend 5 year Growth 12/2011 = -61.71
- Payout Ratio = 0.11
- Payout Ratio 5 Year Average = 0.58
Performance
- Next 3-5 Year Estimate EPS Growth rate = 7
- 5 Year History EPS Growth 12/2011 = -42.27
- ROE 5 Year Average 12/2011 = 1.07
- Current Ratio 12/2011 = 0.84
- Current Ratio 5 Year Average = 0.95
- Quick Ratio = 0.85
- Interest Coverage Quarterly = 4.92
Conclusion
The markets are extremely oversold, and some sort of relief rally could take hold soon. However, we still believe there is more downside to this market before a multi month bottom takes hold. Long-term investors can use strong pullbacks to slowly start deploying money into long-term investments. A great way to get into a stock at a price of your choosing is to sell puts at strikes you would not mind owning the stock at. Investors looking for even more investment ideas might find these articles to be of interest: General Electric: An Option Strategy That Could Potentially triple your yield and Johnson & Johnson 1 Of 5 Long-Term Prospects To Consider.
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.
Additional disclosure: EPS and Price Vs industry charts obtained from zacks.com. A major portion of the historical data used in this article was obtained from zacks.com. Data for Ycharts sourced from Ycharts.com Option table sourced from yahoo finance. Earning and growth estimate data sourced from dailyfinance.com
