By Larry Gellar
Here are 5 stocks that have a 20-day simple moving average crossing above the 50-day simple moving average. This indicates a bull trend is underway. In addition, sophisticated investors should take note of these stocks because their valuations are compelling. As always, use the list below as a starting point for your own due diligence.
Merck & Co. Inc. (NYSE:MRK) is down a bit for the year, and the company is now fighting off a lawsuit from Pfizer (NYSE:PFE). The problem is that Merck wants to make a pill that combines Pfizer’s Lipitor with its own Zetia. Lipitor generics will be made available on November 30th, so that is presumably the earliest that Merck would be able to this combination. On the other hand, Pfizer claims that these pills would be in violation of some of its Lipitor patents, which is where the fight begins.
Meanwhile, Merck’s Zetia is currently used in its Vytorin pill, and some users have questioned Vytorin’s effectiveness. If further research shows that Vytorin, which has Zetia and Zocor, isn’t particularly better than Zocor alone, Merck may have trouble selling the Lipitor-Zetia combination. In other news, Fitch is reiterating its A+ credit rating for Merck. The company notes that while generic drug will decrease revenue, debt levels aren’t as high as they used to be.
With this in mind, Merck’s cost of borrowing should remain low. Important competitors for Merck include Bayer (OTCPK:BAYRY) and GlaxoSmithKline (NYSE:GSK). Those stocks are cheaper using price to earnings and price/earnings to growth ratios, although Merck is in the middle for price to sales. Merck’s margins are also in the middle – those numbers are 65.22% gross and 21.25% operating.
Adobe Systems Inc. (NASDAQ:ADBE) has fallen this year, although the company was recently the subject of an interesting New York Times article. That piece explains some of Adobe’s innovations set to come out in the near future, including a virtual drafting table of sorts. That hardware/software combo will allow users to make adjustments by simply touching the screen. Adobe also has numerous pieces of software coming out for Google’s (NASDAQ:GOOG) Android and Apple’s (NASDAQ:AAPL) iOS.
Adobe’s chief technology officer had this to say:
Until now we’ve only really used tablets as consumption devices. But they are incredible tools for creativity too; this makes creating with this software intuitive for anyone.
The focus of this new software is mostly imaging along with some features that involve cloud computing. Users of Adobe software can also look forward to increased support for HTML5 as well as new ways to actually purchase Adobe software. Indeed, Adobe is tinkering with ways to allow customers to rent the company’s programs through the cloud and use it across multiple devices.
Other software giants to consider investing in are Apple (AAPL) and Microsoft (NASDAQ:MSFT). Adobe offers the lowest price to sales ratio out of those stocks, although price to earnings and price/earnings to growth ratios are closer to average.
Exxon Mobil Corporation (NYSE:XOM) is up a bit for the year, and the company is renewing its focus on engine lubricants. Demand for this product is accelerating rapidly because it’s so important in everything from factories to vehicles of all types. Exxon Mobil has also made headlines for its partnership with OAO Rosneft. An agreement with the Russia-based oil giant had already been reached for areas mostly in North America, although now it appears that Rosneft is reaching out to Exxon Mobil for help in the Middle East as well.
That’s the type of deal that should have investors excited because a partnership between these two goliaths will be quite profitable. In other news, an oil sheen has been discovered at Exxon Mobil’s Billings site in Montana, although this should not impact production significantly. Important competitors for Exxon Mobil include BP (NYSE:BP) and Chevron (NYSE:CVX). Those stocks are cheaper using price to earnings and price to sales, although price/earnings to growth is the lowest for Exxon Mobil.
As for margins, Exxon Mobil is about average, with gross margin at 31.45% and operating margin at 12.74%. Cash flows have been mixed, with $2.868 billion flowing during 2010 and $462 million flowing during the first half of 2011.
Lowe’s Companies Inc. (NYSE:LOW) has fallen significantly in 2011, and the stock is now trading ex-dividend. A quarterly dividend payment of $0.14 per share will be made on November 2nd. Home Depot (NYSE:HD) has had some better financial success than Lowe’s lately, which is why Lowe’s is going to try a number of new innovations to improve its situation. Potential Lowe’s customers will now be able to go online and use a function called MyLowes, which may be able to improve the company’s sales. More importantly though, Lowe’s is starting a new campaign entitled “Never Stop Improving.” That too should help the company since it’s old “Let’s Build Something Together” was getting a bit tiresome.
Apps for the iPad and iPhone also can’t hurt. Compared to Home Depot, Lowe’s is cheaper using price to earnings, price/earnings to growth, and price to sales ratios. Lowe’s also has the more attractive gross margin, although it is a bit lower on operating margin.
As for cash flows, $20 million flowed in during fiscal year 2011 and $84 million has flowed out in the 6 months since then. Recent outflows have been primarily caused by stock repurchase though, so shareholders need not worry. Beta for this stock is 1.07.
Fifth Third Bancorp (NASDAQ:FITB) is down significantly year-to-date, and the stock was just downgraded by Guggenheim Securities. The price target is now set at $12 and the rating was moved down to Neutral. That shouldn’t discourage investors too much though, and some good news for the company comes in the form of loan delinquencies, or lack thereof. In fact, Fifth Third was able to decrease this crucial statistic for all categories of consumer loans.
At a time when the economy seems mysteriously stagnant, this is rather good news. It goes to show that Fifth Third is becoming wiser with its lending despite the fact that many other banks are still struggling in this department. Market share for Fifth Third is also staying strong. As reported here, the bank is doing quite well in Dayton. Important competitors for Fifth Third include Bank of America (NYSE:BAC), PNC Financial Services (NYSE:PNC), and U.S. Bancorp (NYSE:USB).
Price/earnings to growth ratio is a bit high at 1.99, although price to earnings and price to sales are more in line with the competition. As for cash flows, $159 million flowed out during 2010 and $221 million flowed in during the first half of 2011. Financing activities primarily caused the outflows in 2010.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.