Some So-Called 'Evil' Companies That Make Terrific Stocks

Includes: ANTM, BP, CMCSA, JPM, T, WMT
by: Investment Underground

Investment Underground took a look at consumer rankings of businesses by Here is our opinion on some of the most evil companies in the eyes of consumers everywhere:

British Petroleum (NYSE:BP): The company that litered black gold in the Gulf of Mexico grew revenues by 24.01% to $302.54 billion, but GAAP EPS shrunk to -$1.19 in 2010. The company's income statement for the full year reflects a pre-tax charge of $40.9 billion related to the Gulf of Mexico oil spill. The company also has a low debt to equity ratio of 0.32.

On January 14, 2011, BP and Rosneft Oil Company of Russia (OTCPK:RNFTF) announced that they had agreed a strategic global alliance. BP and Rosneft have agreed to seek to form a joint venture to explore and, if successful, develop three license blocks on the Russian Arctic continental shelf. This deal is now the subject of legal action due to its potentially dilutive nature to shareholders. Additionally, on February 21, BP and Reliance Industries of India announced a |partership in the sourcing and marketing of gas in India. This provides BP a further way to diversify its exploration and production areas away from the Gulf of Mexico.

BP trades right at our fair value estimate, and so would not recommend that you snatch up shares at these depressed price levels. At the very least, BP shares could reach $51 consistent with our dcf model. The next earnings release is on April 27.

Comcast (NASDAQ:CMCSA) (CMCSK): In 2010, revenues grew by 6.10% to $37.93 billion, and GAAP EPS rose by 2.38% to $1.29. The EBT margin also improved to 16.09% from 14.28%. The next earnings release is on May 3. For Q1 2011, analysts estimate Comcast will earn $0.35 per share, an increase of 13.02% over Q1 2010, and revenues of $11.7 billion, an increase of 26.77% over Q1 2010. With a net margin of 10.3%, Comcast is not only profitable but is more profitable than the Media industry median. The company also has a debt to equity ratio of 0.67.

We believe that Comcast will continue to increase revenues at a modest pace, and that it will turn around NBC. We place a price target of $30, and so at these price levels, you should buy. CMCSA currently yields 1.8%, and CMCSK currently yields 1.9%.

Wellpoint (WLP): This Medicare and senior health mega-insurer sports a PE below 10 on a current and forward year basis. The yield is 1.4%, with plenty of room for growth. The clouds of Obamacare remain, however we think shares are slightly undervalued relative to our fair value estimate of $74 per share on a discounted cash flow basis. We use a 10.5% cost of equity given the heightened uncertainty.

AT&T (NYSE:T): The former monopolistic telephone switchboard operator is a "dividend champion," having increased its payout for 27 straight years. With a current yield of 5.6% it certainly deserves to be mentioned in any dividend conversation. It recently went Ex-dividend on April 6, so it is a bit late to catch this quarter's payout. Still, this telecommunications company shows a bit of everything: High yield, sustainability (51% payout ratio) and growth opportunities if its bid for T-Mobile goes through. The 5% average five-year growth rate isn't overly impressive, but you don't need too much appreciation on top of the high yield. The current yield has dropped as of late, but if history turns out to be the map to the future, there shouldn't be much concern.

WalMart (NYSE:WMT): On April 12, the massive retailer sold at an historically low PSR of 0.4, almost twelve percent lower than its 10-year low of 0.45, with a P/B ratio of 2.6, also below its historic low of 2.68. While Wal-Mart is currently faced with the possibilities of higher labor costs and deflation in large categories, it is still the largest player in the game, and the firm's reputation as a general retailer allows it to easily shift product to meet consumer demand. International prospects also look good as the company continues to build momentum in key markets such as Mexico, China and Brazil. Ultimately, consumer performance will dictate the company's success. Currently trading for around $53.50, WMT is below our fair value of $60. Shares yield 2.8%. Soros recently added over 920,000 shares.

JP Morgan (NYSE:JPM): JP Morgan Chase quickly took advantage of allowable dividend increases by bumping its quarterly mark up to $0.25 from $0.05. This actually isn't that far off from the pre-recession $0.38 quarterly payout. Add in the 5% payout ratio and the future outlook for this financial powerhouse appears to be promising. The 2.1% current yield isn't that attractive, but then again the $8 billion common share buyback should be factored in to the shareholder value equation. Some might not be keen on the near 50% increase in CEO Jamie Dimon's compensation during 2010 -- but to be fair, his year-to-year base salary did not change, just his stock option incentives.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.