6 Hated, Undervalued Large Caps to Buy and Hold

May 29, 2011 8:04 AM ETHPQ, JASO, INTC, BB, MSFT, TTE72 Comments

With the AAII sentiment survey coming in much more bearish than many expected, the time to snap up value stocks that have been thrown out with the index bathwater may be close at hand. The bearish sentiment is reaching levels that are consistent with solid opportunities on the long side,

Valuations, macro economics, technical analysis, and most of all the fact that the markets are below the 50 day moving averages likely mean that pain for equities is close at hand. But with everyone so bearish a shorter term bounce may come first to clear the oversold condition in the markets. In essence, I am a longer term bear when it comes to the stock market but am always looking for cheap stocks for my long book. Here are 6 hated stocks that could bounce significantly regardless of the direction of the overall markets.

Hewlett Packard (HPQ) - With a trailing PE under 9X and a forward PE of 6.7X, HPQ is a solid longer term buy at these prices in my view. The stock is trading failry close to the lows of 2009 while the business has grown quite a bit over that period of time. Investors are confused over management changes and defections from the higher up ranks within the company, but the bottom line is that HPQ is the low cost leader in lap top computers and other verticals. I like the stock on a free cash flow basis, and the company has repurchased large amounts of stock in the recent past. Strong cash flow per share make HPQ a value buy for the longer term in my view. That said, the company offers little in the way of margin of safety from a balance sheet perspective so investors may want to sell call options against their stock positions for some insurance.

This article was written by

WWW.JAGUARALPHA.COM          Protecting and preserving capital (purchasing power) over the long term is more important to me than growing capital. Main research focus relates to investment risks and how to hedge against them inexpensively. In most market environments I'm a fan of buying undervalued stocks of good companies and holding for long periods of time. In today's environment, delta hedging via options and risk management is more of the focus. When the facts change, so will my focus. I don't give "tips" or make recommendations... unbiased analysis on etf's stocks and bonds but do not tell readers whether to buy, sell, or hold. Some articles will list ten well known stocks and describe our general investment theme without "picking" stocks -- this leads to confusion for those trying to "rank" my analysis. By definition, these articles analysis and rants are meant to help readers analyze data sets and make their own decisions. Generally, we are permabulls. However, we focus on risks and hedging them in these articles because many stocks go to zero. We've seen it happen and want to teach not only from successes but also from our many failures.Interests include researching cheap stocks of high quality companies, GARP stocks, Magic Formula names, and stocks trading below intrinsic value. Participate long only without hedge when overall bull market is trading for a CAPE under 20 (Tobin's Q under .8X) or when blood is in the streets (not dip buyers), but strive to cut losers early when the facts change and refuse to marry long or short positions unless a "holding period of forever" makes sense. Hunches must be backed up by disciplined systems. In fully valued markets, we prefer hedging via index options and light commodity trading/trend following. Not interested in participating in latest fad or bubble. Prefer to short the bubble, but only after evidence suggests the bubble has popped. Prefer to hedge any long positions in frothy markets utilizing a balanced long short equity approach in fairly valued markets. In undervalued markets, we need confirmation from market conditions and valuations in order to invest 100% long (or more) using in the money call options for leverage. Covered calls, calendar spreads, and other options strategies for capturing theta decay. Cut losers on short side by using ITM put options instead of stock, trend following strategies if trading commodities (for diversification). Fundamental analysis but also technical analysis. Mathematical, disciplined trading strategies. Strive first off to be right about the overall direction of the market (bull or bear). Hold lots of cash when people are being greedy. Nothing we publish here is a recommendation to buy or sell any security. Please consult your financial advisor before buying or selling any security.

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