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In the learning to fish series, investors are provided 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 dividend investing. The suggested guidelines can be accessed here "Our suggested guidelines when searching for new investment ideas." These are not absolute rules; they are just suggestions and there are always exceptions to the rule. The goal is to try to satisfy as many of them as possible. United States Steel Corp (NYSE:X)is an example of play that fulfils some but not all of the listed criteria.

Some reasons to consider Company: United States Steel Corp :

  • A positive levered cash flow of $25.8 million
  • Percentage short of float is at 26.4%, which makes it a very good candidate for a short squeeze.
  • A cash flow five year average of $8.60
  • Strong institutional presence; percentage Held by Institutions is 78.2%
  • Net income has improved from -$1.4 billion in 2009 to -$53 million in 2011.
  • Cash flow per share has increased from -$5.27 in 2009 to $3.62 in 2011.
  • Sales improved from $11 billion in 2009 to $19.8 billion in 2011.
  • A 3-5 year estimated EPS growth of 8%
  • A decent current ratio of 1.59
  • A projected growth rate of 61% for 2013

Suggested strategy

The stock is still in a downtrend and it just recently blew past its 2 year lows. We would wait for a test of its 5 years lows in the 16.80 ranges before deploying any money into this play. At this stage of the game only those willing to take on a bit of risk should consider this play. Another option, would be to wait for a test of 17.00 and then sell puts at strikes you would not mind owning the stock at.

Company: United States Steel Corp

Levered Free Cash Flow = 25.88M

Brief Overview

  1. Percentage Held by Insiders = 0.29
  2. Relative Strength 52 weeks = 16
  3. Cash Flow 5-year Average = 8.6
  4. Profit Margin = -0.92%
  5. Operating Margin = 2.34%
  6. Quarterly Revenue Growth = 6.3%
  7. Quarterly Earnings Growth
  8. Operating Cash Flow = 577.00M
  9. Beta = 2.4
  10. Percentage Held by Institutions = 78.2%
  11. Short Percentage of Float = 26.4%

Growth

  1. Net Income ($mil) 12/2011 = -53
  2. Net Income ($mil) 12/2010 = -482
  3. Net Income ($mil) 12/2009 = -1401
  4. Net Income Reported Quarterly ($mil) = -219
  5. EBITDA ($mil) 12/2011 = 898
  6. EBITDA ($mil) 12/2010 = 468
  7. EBITDA ($mil) 12/2009 = -1025
  8. Cash Flow ($/share) 12/2011 = 3.62
  9. Cash Flow ($/share) 12/2010 = 1.75
  10. Cash Flow ($/share) 12/2009 = -5.27
  11. Sales ($mil) 12/2011 = 19884
  12. Sales ($mil) 12/2010 = 17374
  13. Sales ($mil) 12/2009 = 11048
  14. Annual EPS before NRI 12/2007 = 8.74
  15. Annual EPS before NRI 12/2008 = 17.88
  16. Annual EPS before NRI 12/2009 = -10.53
  17. Annual EPS before NRI 12/2010 = -2.83
  18. Annual EPS before NRI 12/2011 = -1.11

Dividend history

  1. Dividend Yield = 1.12
  2. Dividend Yield 5 Year Average = 1.05
  3. Dividend 5 year Growth = -27%

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 8
  2. ROE 5 Year Average 12/2012 = 5.93
  3. Current Ratio = 1.59
  4. Current Ratio 5 Year Average = 1.85
  5. Quick Ratio = 0.82
  6. Cash Ratio = 0.16
  7. Interest Coverage Quarterly = 0.90

Company: Deere & Co (NYSE:DE)

Growth

  1. Net Income ($mil) 12/2011 = 2800
  2. Net Income ($mil) 12/2010 = 1865
  3. Net Income ($mil) 12/2009 = 874
  4. EBITDA ($mil) 12/2011 = 5897
  5. EBITDA ($mil) 12/2010 = 4779
  6. EBITDA ($mil) 12/2009 = 3544
  7. Cash Flow ($/share) 12/2011 = 8.98
  8. Cash Flow ($/share) 12/2010 = 6.93
  9. Cash Flow ($/share) 12/2009 = 5.6
  10. Sales ($mil) 12/2011 = 32013
  11. Sales ($mil) 12/2010 = 26005
  12. Sales ($mil) 12/2009 = 23112
  13. Annual EPS before NRI 12/2007 = 4.01
  14. Annual EPS before NRI 12/2008 = 4.7
  15. Annual EPS before NRI 12/2009 = 2.84
  16. Annual EPS before NRI 12/2010 = 4.65
  17. Annual EPS before NRI 12/2011 = 6.63

Dividend history

  1. Dividend Yield = 2.5
  2. Dividend Yield 5 Year Average = 2.10
  3. Dividend 5 year Growth = 12.45

Dividend sustainability

  1. Payout Ratio = 0.23
  2. Payout Ratio 5 Year Average = 0.28

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 12.06
  2. 5 Year History EPS Growth = 9.62
  3. ROE 5 Year Average 1 28.45
  4. Current Ratio = 2.03
  5. Current Ratio 5 Year Average = 1.97
  6. Quick Ratio = 1.8
  7. Cash Ratio = 1.54
  8. Interest Coverage Quarterly = 5.17

Company: Lockheed Martin (NYSE:LMT)

Levered Free Cash Flow = 2.01B

Brief Overview

  1. Percentage Held by Insiders = 1.13
  2. Relative Strength 52 weeks = 73
  3. Cash Flow 5-year Average = 9.89
  4. Profit Margin = 5.9%
  5. Operating Margin = 8.33%
  6. Quarterly Revenue Growth = 6.3%
  7. Quarterly Earnings Growth = 26%
  8. Operating Cash Flow = 2.99B
  9. Beta = 0.64
  10. Percentage Held by Institutions = 90.2%
  11. Short Percentage of Float = 5.2%

Growth

  1. Net Income ($mil) 12/2011 = 2655
  2. Net Income ($mil) 12/2010 = 2878
  3. Net Income ($mil) 12/2009 = 2973
  4. Net Income Reported Quarterly ($mil) = 668
  5. EBITDA ($mil) 12/2011 = 4993
  6. EBITDA ($mil) 12/2010 = 5175
  7. EBITDA ($mil) 12/2009 = 5504
  8. Cash Flow ($/share) 12/2011 = 11.76
  9. Cash Flow ($/share) 12/2010 = 10.34
  10. Cash Flow ($/share) 12/2009 = 10.68
  11. Sales ($mil) 12/2011 = 46499
  12. Sales ($mil) 12/2010 = 45803
  13. Sales ($mil) 12/2009 = 45189
  14. Annual EPS before NRI 12/2007 = 6.84
  15. Annual EPS before NRI 12/2008 = 7.72
  16. Annual EPS before NRI 12/2009 = 7.78
  17. Annual EPS before NRI 12/2010 = 7.26
  18. Annual EPS before NRI 12/2011 = 8.23

Dividend history

  1. Dividend Yield = 4.8
  2. Dividend Yield 5 Year Average = 3.4
  3. Dividend 5 year Growth 03/2012 = 22.41

Dividend sustainability

  1. Payout Ratio = 0.46
  2. Payout Ratio 5 Year Average 03/2012 = 0.32

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 5.04
  2. 5 Year History EPS Growth 03/2012 = 3.83
  3. ROE 5 Year Average 03/2012 = 66.49
  4. Current Ratio 03/2012 = 1.19
  5. Current Ratio 5 Year Average = 1.12
  6. Quick Ratio = 0.96
  7. Cash Ratio = 0.46
  8. Interest Coverage Quarterly = 10.88
  9. A retention ratio of 64%

Conclusion

Long-term investors should use strong pullbacks to open up positions in stocks they would not mind owning for the long haul. 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 willing to take on a bit more risk might find this article to be of interest Alpha Natural Resources 1 Of 3 Candidates Trading Below Book.

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: United States Steel Corp Among 1 Of 3 Plays To Consider

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. 2011 revenue mix chart sourced from Zacks.com.