5 Value Stock Ideas For The First Quarter

Includes: MMM, PG, UPS, VFC, WY
by: Stock Croc

In this article, I provide my five best buy ideas for the first quarter. These stocks are trading below fair value. As always, please use my analysis as a starting point for your own due diligence.

United Parcel Service (NYSE:UPS): Towards the tail end of 2011, this stock has basically stayed in a range from $68.00 per share to $74.00 per share. Over the coming five years the management at United Parcel Service anticipate improved top line growth, revenue and margin expansion will drive earnings per share to new highs (see this article). The company has just increased its rates on all ground, air and international shipments in this endeavor by 4.9%. Third quarter results recently reported by the company beat analyst expectations on growing US domestic package shipments (a metric used by economist to measure expansion) as well as growth in supply chain and freight shipments. For the current quarter holiday shipments, low inventories and product launches are expected to increase as well as Asian exports.

United Parcel Service is continuing its development in emerging markets over the next five years with a $500 million investment in new technology and facility expansion in countries that include Latin America, Vietnam, China, and Korea. United Parcel Service is also a company that takes care of its share holders. Along with growth estimated at 6% to 15% over the next five years the company plans to buy back shares to the tune of $8 billion. United Parcel Service has recently raised its repurchase capacity by 35% to $2.7 billion and also raised its quarterly dividend by 11% to $.52 per share from $.47 per share.

V.F. Corporation (NYSE:VFC): Did you ever get clothes for Christmas? Is that some sort of joke Santa plays on you, or has coal gone out of fashion? Speaking of fashion, V.F. Corporation is doing quite well. The stock has come off its high of $140 per share and a well established trend it has been on since February when it was at $80.00 per share. The company's business model is pretty straightforward - V.F. Corporation owns its own retail chain, but for the most part it sells to clothing and department stores. The company purchases fashionably branded companies (with higher margins) then focuses on improving their supply chain and business operations, leaving the design and creativity work to the brand itself. The company's holdings include brands like Nautica, John Varvatos, Wrangler and Lee among others (see this article).

V.F. Corporation's main competitors in this market are Gap Inc. (NYSE:GPS) with a market cap of 9.04 billion and Guess? (NYSE:GES), with a market cap of 2.71 billion. V.F. Corporation has a market cap of 14.17 billion making it the largest of the three companies. The Gap has a current PEG ratio of 1.29 with forecast earnings growth of -20.35% in 2012 and Guess? has a current PEG ratio of 0.60 with forecast earnings growth of -1.11% in 2012. V.F. Corporation's PEG ratio is 1.37 which makes it slightly more expensive, but its forecast earnings growth of 27.23% in 2011 and 16.50% in 2012 far outweigh this premium and is a good signal the stock has room to run.

Weyerhaeuser Company (NYSE:WY): This stock seems to be regaining its footing a bit, bouncing off its low of $15.10 per share. The stock is currently above $18.00 per share as I write this. Weyerhaeuser Company took a nose dive in late July when the company announced it was converting itself into a real estate investment trust which will save money on corporate tax payments (see this article). To do so Weyerhaeuser Company must pay out a $5.60 billion dividend to shareholders.

This dividend represents the company's previously undistributed earnings since its inception and was seen as diluting the shares. The move essentially amounts to a stock split in which share holders will have to pay taxes on the dividend. This is not a good thing for current shareholders in the near term, but future company distributions will be tax-friendly for shareholders and the company as a real estate investment trust.

The company will also benefit from future earnings growth compared to its two closest competitors as these metrics suggest: International Paper Company (NYSE:IP) has forecast earnings growth of 0.09% for 2012 and 10.44% for 2013, Louisiana Paper Corporation (NYSE:LPX) has forecast earnings growth of -295.91% for 2012 and 44.75% for 2013 and Weyerhaeuser Company has forecast earnings growth of 55.17% for 2012 and 114.37% for 2013.

Procter & Gamble (NYSE:PG): Lately, Procter & Gamble stock has fallen from $66.00 to $61.00 per share only to come straight back up again. During an economic downturn household staples are still a necessity and the only risk factor to a company like Procter & Gamble is substitution or trading down to cheaper brands or private labels. Procter & Gamble offsets this risk by offering two different versions of each product it sells at different price points. The company's portfolio of brand name products is the largest in the industry with over 24 brands that bring in over a billion dollars in sales. The company uses these billions in part to payback its shareholders in the form of dividends (see this article).

Procter & Gamble also uses the billions to expand into developing markets and for a unique form of R&D called Connect and Develop (read more). In expanding markets the company gathers all the statistical data it needs directly from home visits to consumers and tailors their products to a nations specific needs and customs. Compared to its closest competitors Unilever (NYSE:UL) with a PEG ratio of 2.29 and Colgate-Palmolive Company (NYSE:CL) with a PEG ratio of 2.10 the stock is cheap. Procter & Gamble Company currently has a PEG ratio of only 1.73.

3M Company (NYSE:MMM): Lately, the stock has been range-bound between $75.00 and $85.00 per share. Looking at the yearly chart I get the impression most of the sellers of the stock have already sold and the buyers are on the sidelines waiting for it to make its move upwards. So let's look at the company more closely and see if this impression is justified. As I expected, this article indicates a bearish response to an otherwise solid earnings report released at the end of July. The Bad News Bears took this as a signal to sell that brought the stock from its 52 week high of $98.19 to its 52 week low of $70.93, creating a great buying opportunity for those of us with a more optimistic nature.

But maybe we should double check by comparing 3M Company to two of its closest competitors, Avery Dennison (NYSE:AVY) and E.I. du Pont de Nemours & Company (DD). Avery Dennison has a PEG ratio of 1.82 with forecast earnings growth of 20.79% in 2012 and 10.70% in 2013. E.I. du Pont de Nemours & Company has a PEG ratio of 1.19 with forecast earnings growth of 7.78% in 2012 and 11.97% in 2013. 3M Company is the cheaper stock of the trio with a PEG ratio of 1.11 and forecast earnings growth of 6.81% in 2012 and 8.53% in 2013.

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