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Bret Jensen
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Daily columnist for RealMoney at TheStreet.com. Editor for both a small cap and turnaround monthly newsletter at Investors Alley ( http://investorsalley.com). Chief Investment Strategist (CIS) for S.A.M (Simplified Asset Management), a long/short hedge fund based in Miami, Florida from 2008 to... More
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  • 3 reasonably priced blue chip stocks yielding 4%
    Decent relatively safe yield is getting harder and harder to find. 10 year government bonds are going for 3.1% and money market funds and certificate of deposits yield nothing. Here are three equity selections where can you invest in blue chip, low beta companies with good valuations and yield more than parking your money with Uncle Sam. They also give you a good chance for capital appreciation over the long term to boot.
    American Electric Power (NYSE:AEP) - American Electric Power Company, Inc., together with its subsidiaries, engages in the generation, transmission, and distribution of electric power to retail customers. The company generates electricity using coal and lignite, natural gas, nuclear, and hydroelectric energy. It also supplies and markets electric power at wholesale to other electric utility companies, municipalities, and other market participants. In addition, the company operates barging operations that transport coal and dry bulk commodities primarily on the Ohio, Illinois, and lower Mississippi Rivers, as well as operates nonregulated wind farms.
    Valuation and Prospects – AEP goes for 12 times this year’s estimated EPS and around 11.5 times 2012’s consensus. The stock now is in the bottom half of its five year valuation range based on P/B, P/E and P/CF. It yields a robust 4.9% after raising its dividend 9.5% late in 2010. Earnings should continue to improve given the $200mm in rate increases AEP received in 2011. It also should benefit from a gradual recovery in the economy.   AEP currently sells for around $37.50. S&P has a price target of $42 on American Electric and the Street is at $43. Nothing exciting, but this stock is primarily a yield of play.
    Merck & Co. (NYSE:MRK) - Merck & Co., Inc. provides various health solutions through its prescription medicines, vaccines, biologic therapies, animal health, and consumer care products. The company’s Pharmaceutical segment provides human health pharmaceutical products, such as therapeutic and preventive agents for the treatment of human disorders in the areas of bone, respiratory, immunology, dermatology, cardiovascular, diabetes and obesity, infectious diseases, neurosciences and ophthalmology, oncology, vaccines, and women's health and endocrine. This segment also offers human health vaccines, such as preventive pediatric, adolescent, and adult vaccines. Its Animal Health segment discovers, develops, manufactures, and markets animal health products. This segment offers antibiotics, anti-inflammatory products, vaccines, products for the treatment of fertility disorders, and parasiticides for cattle, swine, horses, poultry, dogs, cats, salmons, and fish. The Consumer Care segment develops, manufactures, and markets over-the-counter, foot care, and sun care products.
    Valuation and Prospects – Merck sells for less than 9.5 times this year’s projected earnings and just nine times 2012’s consensus earnings. Merck at these levels is selling at the very bottom of its five year valuation range based on P/S and P/B and is in the bottom half of it five year valuation range based on P/E and P/CF. MRK has a double AA rated balance sheet, pays a generous dividend yield of 4.4%, and has a low beta of .7.  Merck has a good drug pipeline including an important new Hep C drug. It also continues to get cost synergies from its acquisition of Schering Plough. In addition, Merck is significantly under analysts’ price targets. Merck is selling at just $35 a share.   Credit Suisse has a price target of $44, S&P is at $42 a share and JP Morgan is also at $44 a share on Merck. 
    NextEra Energy (NYSE:NEE) - NextEra Energy, Inc., through its subsidiaries, engages in the generation, transmission, distribution, and sale of electric energy in the United States and Canada. As of December 31, 2010, NextEra Energy had approximately 43,000 mega watts of generating capacity. The company involves in the generation of renewable energy from wind and solar projects. It also generates electricity through natural gas, nuclear, oil and coal, and hydro power plants. The company serves approximately 8.7 million people through approximately 4.5 million customer accounts in the east and lower west coasts of Florida. In addition, it leases wholesale fiber-optic network capacity and dark fiber to telephone, wireless carriers, Internet, and other telecommunications companies.
    Valuation and Prospects – NEE sells for under 13 times this year’s expected earnings and just 12 times 2012’s consensus EPS. Next Era Energy has grown earnings an average of just under 10% a year over the last five years and is currently selling at the bottom quarter of five year valuation range based on P/E, P/B and P/CF. It has an A- rated balance sheet and yields a solid 3.9%. It also has raised its dividend payout an average of 7.5% a year over the last half decade. This growth should continue in line with earnings growth. The company has good growth prospects over the long term in its core customer region of Florida and in its growing solar and wind initiatives. NEE is selling at just over $57 a share. S&P has a price target of $62 and Jefferies is at $62.50.


    Disclosure: I am long MRK.
    Jun 29 6:32 PM | Link | Comment!
  • Three high yielding European Telecom stocks worth a look
    The market continues to struggle. Wednesday’s market consisted of a good rally in the morning giving way to a flat close. As detailed in numerous articles, I believe the market is at best dead money over the next six months. Rising gas prices, increasing inflation, Middle East turmoil, European Debt Contagion fears, a moribund housing market and the end of QE2 are just some of the major headwinds the market is facing. I think “safety” is the word of the day for investing in this market for the rest of year. One of areas that might have some bargains left, is the beaten up European Telecom market. The stocks have been hindered by worries about slow growth and sovereign debt contagion. However, these stocks cash flow and high dividend yields could be enticing here and put a floor under their stock prices. Here are a few that might be worth looking at:
    France Telecom– FTE is selling at nine times this year’s and next year’s consensus earnings. Earnings estimates have increased approximately 5% over the last ninety days for both 2011’s and 2012’s projected net earnings. It low single digit revenue growth is offset by a low valuation and a generous yield of 5.7%.
    Telefonica– TEF is selling at roughly ten times both this year’s and next year’s projected earnings. It yields a very rich 5.5%. This is one of my favorite high yield stocks, and I have recommended it in other articles. The stock has been punished due to the problems in Spain. However, the majority of its revenues come from outside Spain primarily in Latin America; where prospects are good. In addition, the company’s efficiency efforts in Spain and throughout Europe seem to be yielding good results and offsetting revenue declines there. I believe this company is well positioned for the future and its high dividend yield puts an effective floor under the stock price.
    Nokia – NOK is the riskiest of these three picks, albeit the one with the most upside if it can stage a successful turnaround in the smartphone market through its partnership with Microsoft and/or continues to benefit from its market leader status in the low and medium price point share of the emerging market handset universe. Despites its myriad of challenges over the last two years, it has increased operating cash flow by 40% over that time period. It sells at 13 times this year’s earnings and 12 times projected earnings for 2012. It also has over $3 per share of net cash.


    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Tags: NOK, ORAN, TEF, Long Idea
    Apr 13 5:00 PM | Link | Comment!
  • How rising oil prices are likely to hit retail stocks.
    Oil prices continue to rise rapidly due to the growing turmoil in the Middle East. This market is looking more and more like early 2008 when the run up in oil prices was one of the factors that tipped the economy into recession (The financial crisis made it the worst downtown since the Great Depression). Energy inflation is already impacting consumer sentiment and it is my belief it will have major impacts to consumer spending and the overall economy. One of the market sectors that is likely to be hit especially hard is consumer discretionary stocks. I decided to look at a basket of twelve well known retail stocks from the beginning of 2008 to the end of July that year (6 weeks before Lehman) to see how they behaved in order to see if this research could give insights on how this sector is likely to trend over the next six months if oil remains at these prices or rises further.
    The companies I picked represent various parts of retailing universe. They are Sears, Macys, Best Buy, Abercrombie and Fitch, Walmart, Gap, Amazon, Target, Costco, Lululemon, Tiffany, and Apple. Over the time period of January 1st, 2008 through July 31st, 2008 the S&P index lost a little over 12% for comparison purposes. After doing the analysis, these are the results:
    1.       Costco and Target lost between 7-8% of their value
    2.       Tiffany and Best Buy lost between 14-15% of their value
    3.       Sears, Macys, Abercrombie & Fitch, Gap, Apple and Amazon lost between 20-28% of their value
    4.       Lululemon lost approximately 50% of its value
    5.       Walmart actually gained over 20% over this time period
    CONCLUSIONS: So what can we conclude from this limited analysis? (NYSE:A) Stocks that sell staples like Walmart, Target and Costco should hold up better than the market overall and much better than other retail stocks in an environment with high oil prices. (NYSE:B) Stores that sell higher end items like Tiffany and Best Buy should move roughly in line with the market. (NYSE:C) Retailers that sell apparel or basic discretionary items like Sears, Macys, Abercrombie & Fitch, Gap and Amazon should fall harder than the market overall. (NYSE:D) High beta retailing stocks that sell highly discretionary items such as Yoga wear like Lululemon are likely to be hit the hardest in any kind of oil induced pullback. 
     
    Given all the geopolitical and domestic challenges the market currently faces, I would be cautious here. Be careful out there.


    Disclosure: I am long WMT.
    Apr 11 8:54 AM | Link | Comment!
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