3 Solid Investments

Includes: AVT, TMUS, TRW
by: Cabot

By J. Royden Ward

I pulled up a list of Value Line stocks with Timeliness Ratings of one, and as usual 100 stocks popped up. In Value Line’s view, all 100 stocks will outperform the stock market indexes for the next six to 12 months. Then I downloaded all Standard & Poor’s stocks with S&P Stars Ratings of five, their “Strong Buy” rank. Only 77 stocks came up, but all are considered by S&P to be superior investments.

I use a matching program, created by my loving wife who happens to also be a computer programmer, which compares the stocks from the two services and finds stocks that are the same or a “match” in both services. My program turned up eight stocks with strong buy ratings from both Value Line and Standard & Poor’s. My past experience using this methodology has shown that these eight stocks will perform very well, on average, during the next six to 12 months.

Included in the list of eight were stalwarts Hewlett-Packard (NYSE:HPQ) and Wal-Mart (NYSE:WMT). Also included were Avnet (NYSE:AVT), Metro PCS Communications (PCS) and TRW Automotive (NYSE:TRW), which are a tad more risky than HPQ and WMT, but look more attractive to me and are described below.

Avnet is a distributor of electronic components, enterprise computer and storage products and embedded subsystems. From suppliers, the company receives electronic components, computer products and software, and resells to manufacturers, sometimes with assembly or other value added by Avnet. The company sells to more than 300 electronic component manufacturers. To retailers, Avnet markets and sells mid- to high-end servers, data storage, software and the services required to implement these products and solutions.

Corporations are fueling demand for storage products and networking gear, as those companies upgrade their data centers to improve efficiency. Avnet’s recent purchase of Bell Microsystems (BELM) will add substantial sales in 2011. I expect 16% earnings per share (EPS) growth during the next five years. At 9.3 times current EPS, AVT shares are a bargain. The company does not pay a dividend.

Metro PCS Communications is a wireless telecommunications provider. The company offers wireless broadband mobile services under the MetroPCS brand in selected metropolitan areas in the U.S. over its own licensed networks or the networks of affiliates.

PCS provides a variety of wireless communications services to its subscribers without long-term contracts, but with paid-in-advance, flat-rate, unlimited usage plans that include all applicable taxes and regulatory fees in the monthly price. PCS’s unique plans are sold at a low monthly fee and are attracting many new customers at the expense of larger providers. The company has eight million subscribers.

Metro PCS’ aggressive marketing of flat-rate wireless plans with unlimited usage is winning new customers at a rapid rate. I forecast 24% EPS growth for the next five years or longer. At 17.2 times earnings, PCS shares are undervalued.

TRW Automotive is a world-wide supplier of automotive systems and components to automotive original equipment manufacturers ((OEMs)). The company’s operations primarily encompass the design, manufacture and sale of safety related products. Products include braking and steering systems, airbags and seat belts, and crash sensors.

TRW is aggressively expanding operations in Brazil and China to meet customer desire. Demand in the U.S. is also picking up, and auto sales in Europe, where TRW has a large presence, should start to see improvement in the second half of 2011. I believe earnings per share will increase 19% per year during the next five years. At 10.4 times EPS, TRW shares are a bargain.

To review the criteria I used to select these stocks, click here.