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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 accessed here "Our suggested guidelines when searching for new investment ideas." One stock that meets all or most of the suggested criteria will be listed as an example, 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 like on Honeywell International (HON):

  • Net income increased from $1.5 billion in 2009 to $2.06 billion in 2011
  • Net income for the 1st quarter came in at $823 billion; if it maintains this pace it could well exceed 2.5 billion this year.
  • A 5 year dividend growth rate of 7.52%
  • Sales Increased from $30 billion in 2009 to $36 billion in 2011
  • EBITDA increased from $3.3 billion in 2009 to $3.6 billion in 2011, though it dropped slightly from 2010 levels
  • Cash flow per share increased from $4.08 in 2009 to $5.09 in 2011
  • Annual EPS before NRI increased from $3.16 in 2007 to $3.79 in 2011
  • A low payout ratio of 36%
  • Quarterly revenue growth 7.3%
  • A decent yield of 2.7%
  • A good free cash flow yield of 6%
  • A 3-5 year projected EPS growth rate of 13.2%
  • A beta of 1.44 makes it a decent candidate for covered writes or selling puts.
  • A long term debt to equity ratio of 0.53
  • Strong institutional support; 81%is held by institutions
  • A decent quarterly earnings growth of 16.7%
  • A good interest coverage ratio of 13.5
  • Year over year projected growth rates of 18% and 12% for 2012 and 2013 respectively
  • It has been paying dividends since 1887
  • Total 3 year return of 88%
  • $100K invested for 10 years would have grown to $274K; if the dividends were reinvested the rate of return would have been higher.

Interesting companies

For investors looking for other ideas detailed data has been provided on two additional companies; additionally our latest article could provide more ideas.

Company: BHP Billiton Ltd (BHP)

Basic Key ratios

  1. Percentage Held by Insiders = 0.02
  2. Relative Strength 52 weeks = 33
  3. Dividend 5-year Growth = 19.65
  4. Cash Flow 5-year Average = 7.81
  5. Dividend Yield 5-Year Average = 2.25

Growth

  1. Net Income ($mil) 12/2011 = 23946
  2. Net Income ($mil) 12/2010 = 13009
  3. Net Income ($mil) 12/2009 = 5877
  1. EBITDA ($mil) 12/2011 = 36784
  2. EBITDA ($mil) 12/2010 = 24331
  3. EBITDA ($mil) 12/2009 = 15488
  1. Cash Flow ($/share) 12/2011 = 16.64
  2. Cash Flow ($/share) 12/2010 = 10.26
  3. Cash Flow ($/share) 12/2009 = 6.08
  1. Sales ($mil) 12/2011 = 71739
  2. Sales ($mil) 12/2010 = 52798
  3. Sales ($mil) 12/2009 = 50211
  1. Annual EPS before NRI 12/2007 = 2.24
  2. Annual EPS before NRI 12/2008 = 5.5
  3. Annual EPS before NRI 12/2009 = 2.1
  4. Annual EPS before NRI 12/2010 = 4.48
  5. Annual EPS before NRI 12/2011 = 7.83

Dividend history

  1. Dividend Yield = 3.6
  2. Dividend Yield 5 Year Average 12/2011 = 2.25
  3. Dividend 5 year Growth 12/2011 = 19.65

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = -30.97
  2. Next 3-5 Year Estimate EPS Growth rate = 11.92
  3. Debt/Total Cap 5 Year Average 12/2011 = 14.12
  4. Current Ratio 06/2011 = 0.85
  5. Current Ratio 5 Year Average = 1.53
  6. Quick Ratio = 0.97
  7. Cash Ratio = 0.55
  8. Interest Coverage Quarterly = N/A

Company: Exelon Corp (EXC)

Growth

  1. Net Income ($mil) 12/2011 = 2495
  2. Net Income ($mil) 12/2010 = 2563
  3. Net Income ($mil) 12/2009 = 2707
  1. EBITDA ($mil) 12/2011 = 6982
  2. EBITDA ($mil) 12/2010 = 7981
  3. EBITDA ($mil) 12/2009 = 7751
  4. Cash Flow ($/share) 12/2011 = 7.64
  5. Cash Flow ($/share) 12/2010 = 8.42
  6. Cash Flow ($/share) 12/2009 = 8.07
  1. Sales ($mil) 12/2011 = 19184
  2. Sales ($mil) 12/2010 = 18644
  3. Sales ($mil) 12/2009 = 17318
  1. Annual EPS before NRI 12/2007 = 4.31
  2. Annual EPS before NRI 12/2008 = 4.17
  3. Annual EPS before NRI 12/2009 = 4.12
  4. Annual EPS before NRI 12/2010 = 3.95
  5. Annual EPS before NRI 12/2011 = 4.16

Dividend history

  1. Dividend Yield = 4.10
  2. Dividend Yield 5 Year Average 12/2011 = 4.03
  3. Dividend 5 year Growth 12/2011 = 3.25

Dividend sustainability

  1. Payout Ratio 06/2011 = 0.51
  2. Payout Ratio 5 Year Average 12/2011 = 0.49

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 0
  2. EPS Growth Quarterly(1)/Q(-3) = 129.92
  3. ROE 5 Year Average 09/2011 = 23.37
  4. Current Ratio 06/2011 = 1.1
  5. Current Ratio 5 Year Average = 1.2
  6. Quick Ratio = 0.93
  7. Cash Ratio = 0.4
  8. Interest Coverage Quarterly = 159

Conclusion

The markets are still in a corrective mode, and we believe that we will need to see 1-2 more strong waves of selling pressure before a bottom is in place. In the very short term time frames some sort of relief rally could take hold as the markets are extremely oversold. Long-term investors can use strong pullbacks to slowly start deploying money into long-term investments. Investors looking for other interesting candidates might find these articles to be of interest.

Sources: PS 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. Earnings and Growth estimate data sourced from dailyfiance.com. Ycharts data soured from Ycharts.com.

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

Source: Reasons To Be Bullish On Honeywell International