The amount of fear and volatility has really spooked the markets and many investors are back to selling stocks at almost any price, even if it makes no sense fundamentally. When indiscriminate selling is taking place by investors, it is often one of the best times to buy bargain stocks that could rebound and produce rather large gains in a short period of time. Here are a few stocks in companies that have fundamentally sound business models, significant profits, and an element of extreme undervaluation:
Metlife, Inc. (NYSE:MET) shares were in an uptrend for the first part of 2012, and trading near $40 just weeks ago, but the stock has basically lost all of the gains for this year, and now it trades below $30. Since this company sells products like life insurance, annuities, supplemental life insurance and other financial services, it has a fairly stable source of revenues. There are many signs that the shares are undervalued now. The stock is now trading way below book value, which is about $46.52 per share. It is also trading for around 5 times earnings. This less than half of the average stock in the S&P 500, which is currently trading for about 13 times earnings. Metlife recently reported strong results for the first quarter of 2012, with operating earnings of about $1.5 billion or $1.37 per share. These results put the company on track to earn over $5 per share this year, and analysts see even higher profits for next year. The shares offer a solid yield which pays investors about 2.4%, while waiting for higher stock prices. With the markets likely to remain volatile, it makes sense to buy this stock in stages and on dips for a longer-term rebound.
Here are some key points for MET:
- Current share price: $29.61
- The 52 week range is $25.61 to $44.56
- Earnings estimates for 2012: $5.22 per share
- Earnings estimates for 2013: $5.62 per share
- Annual dividend: 74 cents per share which yields 2.4%
Hartford Financial Services (NYSE:HIG) shares had rallied up to about $23, based on a stronger market and the fact that famed hedge fund investor John Paulson was calling for the company to create shareholder value by selling off assets. Hartford also has a stable source of revenues and it provides life insurance, property and casualty insurance which includes workers compensation, property, automobile, marine, umbrella, accident and disability coverage, and many other financial service products. The shares appear deeply undervalued based on a couple of metrics: The stock trades well below book value, which is about $43.25 per share. The price to earnings ratio is below the market average, at just around 5 times earnings. Hartford has been reporting strong results and it announced core earnings of $612 million or $1.25 per share in the first quarter of 2012. This was a gain of about 11% from the same period in 2011. With the stock price back down below $17 per share, it probably won't be long before John Paulson or other activist investors push the company for action like an asset sale or the sale of the entire company. Based on the undervaluation and oversold levels for this stock, it could see strong gains when the market correction ends.
Here are some key points for HIG:
- Current share price: $16.93
- The 52 week range is $14.56 to $27.12
- Earnings estimates for 2012: $3.63 per share
- Earnings estimates for 2013: $3.68 per share
- Annual dividend: 40 cents per share which yields 2.3%
Ford Motor Company (NYSE:F) shares went down to about $10, but have started to show strength and even a bit of a rebound. Unless the situation in Europe gets a whole lot worse, the stock might not go lower and the recent strength could be a sign that it has bottomed out. Even though the earnings estimates have been lowered in recent weeks over global economic concerns, analysts still expect the company to earn about $1.49 per share, which puts the price to earnings ratio at just around 6 times earnings. Ford has a number of positive factors including the recent initiation of a dividend, a higher credit rating and the fact that it is the only leading automaker that did not take bailout funds from the U.S. Government. Ford manufactures and sells under the Ford, Lincoln, and Mercury brands and it has created some very affordable and fuel-efficient models. The Ford Focus is one of the best-selling cars in Europe and even the world due to its great design, and affordable price. While Europe could remain challenging, this company has growth potential in the U.S. and emerging market countries. Ford shares may have hit rock bottom and be poised for better days.
Here are some key points for F:
- Current share price: $10.66
- The 52 week range is $9.05 to $14.90
- Earnings estimates for 2012: $1.49 per share
- Earnings estimates for 2013: $1.73 per share
- Annual dividend: Ford recently announced a 5 cent per share dividend
Disclosure: I am long HIG.
Disclaimer: Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.