When you consider investments at the large cap level, you know you are dealing with the biggest corporations in the world. The sheer numbers - in terms of profits, employees, customers, and more is simply hard to wrap your head around. With so many moving parts, it can be difficult to know if the company if operating efficiently. That is why we searched specifically for stocks that received a recent 'Strong Buy' rating from industry analysts. Then we honed in on stocks with price-multiples that suggest they are still undervalued and trading at a discount. We came up with a short but intriguing list.
The Price/Sales ratio is a price-multiple valuation metric used to help identify if a firm is cheap by its twelve month trailing sales numbers. In the most basic terms it lets an investor know how much the investment community is willing to pay for every dollars worth of sales. A firm with a P/S ratio of one or lower would be viewed as cheap because investors are paying $1 or less for every dollars worth of a firms sales. On the other hand, a firm is generally considered to be expensive when the P/S ratio is above three. These are general guidelines used by the investment community not hard rules to be clear. Price/Sales Ratio = Current Stock Price/Revenue (sales) per Share
The Price/Earnings ratio is one of the most commonly used price-multiple metrics. Often, EPS from the last four quarters is used to derive this number. A firm that has a high P/E ratio generally indicates that investors have high expectations of the firm relative to future earnings growth. By the opposite token, investors generally have lower expectations of a firm with a low P/E ratio. A firm that holds a P/E below 10 could be viewed as having "value investment" potential. One thing to remember is that EPS is an accounting measure that could be potentially manipulated. Thus the P/E is only as good as the quality of the earnings.
We first looked for large cap stocks. We then screened for businesses that analysts rate as "Strong Buy" (mean recommendation < 2). We next screened for businesses that are trading at a discount (P/S<1)(P/E<10). We did not screen out any sectors.
Do you think these large-cap stocks are worth more than their current valuations? Use this list as a starting-off point for your own analysis.
1) Telefonica, S.A. (NYSE:TEF)
|Industry:||Telecom Services - Foreign|
Telefonica, S.A. has a Analysts' Rating of 1.00, a Price/Sales Ratio of 0.73, and a Price/Earnings Ratio of 3.49. The short interest was 0.85% as of 08/07/2012. Telefonica, S.A. provides fixed and mobile telephony services primarily in Spain, Latin America, and rest of Europe. It offers various mobile and related services and products that consist of mobile voice services, value added services, mobile data and Internet services, wholesale services, corporate services, roaming, fixed wireless, and trunking and paging services. The company's fixed telecommunication services include PSTN lines; ISDN accesses; public telephone services; local, domestic, and international long distance and fixed-to-mobile communications services; corporate communications services; video telephony; supplementary and business-oriented value-added services; intelligent network services; leasing and sale of handset equipment; and telephony information services.
2) Mitsui & Co. Ltd. (OTCPK:MITSY)
Mitsui & Co. Ltd. has a Analysts' Rating of 1.00, a Price/Sales Ratio of 0.50, and a Price/Earnings Ratio of 6.75. The short interest was 0.02% as of 08/07/2012. Mitsui & Co., Ltd. operates as a general trading company in Japan and internationally. The company involves in arranging financing for customers and suppliers in connection with its trading activities, organizing and coordinating industrial projects, participating in financing and investing arrangements, assisting in the procurement of raw materials and equipment, providing new technologies and processes for manufacturing, and coordinating transportation and marketing of finished goods. Its trading activities include the sale, distribution, purchase, marketing, and supply of various products, including iron and steel, nonferrous metals, machinery, electronics, chemicals, energy-related commodities and products, food products, textiles, and general merchandise.
3) Deutsche Bank AG (NYSE:DB)
|Industry:||Foreign Regional Banks|
Deutsche Bank AG has a Analysts' Rating of 1.50, a Price/Sales Ratio of 0.70, and a Price/Earnings Ratio of 7.14. The short interest was 0.79% as of 08/07/2012. Deutsche Bank Aktiengesellschaft provides investment, financial, and related products and services. The company's Corporate and Investment Bank division engages in the origination, sale, structuring, and trading of bonds, equities and equity-linked products, exchange-traded and over-the-counter derivatives, foreign exchange, money market instruments, securitized instruments, and commodities to sovereign countries and multinational organizations; and medium-sized companies and multinational corporations. It also offers mergers and acquisitions advisory, corporate finance, and transaction banking, as well as trade finance, and trust and securities services for financial institutions and other companies.
*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.