2 Conservative Picks Far Below Price Targets

Includes: A, MDT
by: Bret Jensen

It is getting harder to find bargains in the stock market after the rally of the last five weeks and with the S&P up at the top of its recent trading range again. I find myself in a conservative mood and am gravitating to equities with low valuations, consistent and growing earnings as well as those that are significantly under analysts’ price targets.

Agilent Technologies (NYSE:A):

Agilent Technologies, Inc. provides bio-analytical and electronic measurement solutions to the communications, electronics, life sciences, and chemical analysis industries worldwide.

(Business description from Yahoo Finance)

Key value observations on Agilent:

  • Agilent is selling in the bottom third of its five year valuation range based on P/E, P/S, P/B and P/CF.
  • The company is showing steady EPS growth. It earned $2.95 per share in FY2010, should make $3.18 in FY2011 and analysts project $3.50 in earnings in FY2012.
  • It has beat earnings estimates the last six quarters and estimates for FY2011 and FY2012 have crept higher in the last two months.
  • The stock is selling under analysts’ price targets. The consensus price target on Agilent is $47, around 40% above current levels. Credit Suisse has an “outperform” rating and a $46 price target on A.

Covidien (COV):

Covidien Public Limited Company develops, manufactures, and sells healthcare products for use in clinical and home settings in the United States and internationally. Its Medical Devices segment offers endomechanical instruments, such as laparoscopic instruments and surgical staplers; energy devices, which include vessel sealing, electrosurgical, and ablation products and related capital equipment; and soft tissue repair products comprising sutures, mesh, biosurgery products, and hernia mechanical devices. (Business description from Yahoo Finance)

Key value observations on COV:

  • The stock looks like it is building technical support in the $42 to $44 range ( chart).
  • Covidien is showing consistent EPS growth. It made $3.97 per share in FY2011, is projected to make $4.28 in FY2012 and analysts expect $4.64 in earnings in FY2013.
  • COV has beat earnings estimates for six straight quarters and sells at a forward PE of under 10 which is a 30% discount to its five year average.
  • The median analysts’ price target on Covidien is $57.50. S&P has a “strong buy” rating and a $64 price target on COV.

Disclosure: I am long COV.