5 Stock Ideas: 2 For Dividends, 3 For Growth

Includes: BMC, DOW, FISV, FRX, OMC
by: Investment Underground

By Larry Gellar

I have identified my best five S&P 500 stock ideas that can help investors profit in the near future. While Omnicom (NYSE:OMC) and Dow Chemical (NYSE:DOW) provide investors with nice dividends, Forest Laboratories (NYSE:FRX), Fiserv (NASDAQ:FISV) and BMC Software (NASDAQ:BMC) are three growth companies that should move higher.

Omnicom Group Inc. is an advertising agency that just increased its quarterly dividend. With the dividend now at $0.30 per share, this stock's dividend yield going forward will be 2.54%. Omnicom had over $1.3 billion of free cash flow in 2010, so the company should be able to keep those dividends going without any problems. In fact, most of that free cash flow in 2010 was used for buying back stock. If Omnicom continues having a significant amount of cash left over, it will probably choose to increase dividends again instead of buying back stock. Omnicom also looks pretty attractive based on the usual value metrics. For instance, its price to earnings (14.79), price/earnings to growth (1.36), and price to sales (0.97) ratios are all lower than Publicis Groupe's (OTCQX:PUBGY). Those numbers for Publicis are 16.25, 2.19, and 1.31, respectively. Meanwhile, Omnicom has had some exciting news lately. Two Omnicom subsidiaries just won big awards at the Singapore Advertising Hall of Fame Awards - DDB Group Singapore won Advertising Agency of the Year and OMD Singapore won Media Agency of the Year. Another important piece of news for Omnicom is DDB's new agency in Indonesia. Investors can read more about that here.

The Dow Chemical Company is a manufacturer and supplier of chemicals. The stock has a juicy dividend yield of 2.9%, and I wouldn't be surprised if Dow Chemical increases dividends again soon. The company had $4.148 billion of operating cash inflow in 2010 and $1.861 billion of operating cash inflow in the first three quarters of 2011. In recent months, Dow Chemical has used significant amounts of money to pay down debt. Once the debt gets down to a more sustainable level, Dow Chemical will have the cash it needs to raise dividends once again. Value metrics look good for Dow Chemical as well. The stock's price/earnings to growth ratio of 1.27 is reasonable compared to BASF (OTCQX:BASFY) and DuPont (NYSE:DD), and price to sales ratio of 0.66 is very low. As for news, Dow AgroSciences is starting an exciting partnership with BioDuro. This discovery research agreement will help Dow's ability to create new fungicides, herbicides and insecticides. The world's increasing demand for food are making these chemicals ever more important, so this development could help Dow Chemical generate revenue in the future. Another piece of news for Dow Chemical has been its consideration of hedging natural gas prices. Whether or not Dow Chemical does decide to hedge, I predict that the next earnings report for the company will be pretty strong due to how inexpensive natural gas has been.

Forest Laboratories, Inc. is a drug manufacturer that does not distribute dividends. Regardless, I wouldn't be surprised if this stock sees some serious price appreciation soon. Forest Laboratories, along with its partner Gedeon Richter, just reported some impressive results for its antipsychotic drug cariprazine. Compared to patients with a placebo, patients that received cariprazine experienced significant symptom improvement. This is important because Forest Laboratories' Lexapro, which accounts for approximately half of the company's revenue, will face generic competition soon. I expect cariprazine to be approved in the next year, though, which will help Forest Laboratories recover some of that lost revenue. Additionally, sales of Bystolic and Savella should increase slightly going forward. Value metrics look good for Forest Laboratories too. The stock has lower price to earnings (7.91) and price to sales (1.81) ratios than other drug manufacturers such as Eli Lilly (NYSE:LLY), GlaxoSmithKline (NYSE:GSK) and Pfizer (NYSE:PFE). Margins are pretty solid as well - those numbers are 78.09% gross and 30.06% operating. Potential investors should also check out Forest Laboratories' latest earnings report. Adjusted earnings per share were $1.04, and revenue was $1.21 billion. Those numbers beat analyst expectations, and Namenda, a treatment for Alzheimer's disease, saw notable sales growth of 6%.

Fiserv, Inc. is a provider of technology solutions for financial services. Like Forest Laboratories, the stock doesn't offer dividends, although there is reason to believe that the share price will appreciate soon. For instance, Fiserv just released an impressive earnings report. Revenue was up 8% year-over-year, and adjusted earnings per share met analyst expectations. In fact, Fiserv's expectations for 2012 were in line with analyst estimates as well. I predict Fiserv stock will move up in the coming months because the company's new solutions in the arenas of Mobile, P2P and Acumen are very exciting. Fiserv also figures to benefit from trends in the financial services industry. Specifically, the environment of extremely low interest rates through 2014 is forcing companies to rethink their models for revenue and efficiency. Fiserv's technology will help companies get through these tough times. Furthermore, Fiserv has made some interesting acquisitions. Indeed, new subsidiaries like M-Com, Maverick Solutions and CashEdge should improve what Fiserv can offer to clients. As for value metrics, Fiserv has a price/earnings to growth ratio of 1.09, which is comparable to similar companies like Accenture (NYSE:ACN), Fidelity National Information Services (NYSE:FIS), and Total System Services (NYSE:TSS). Fiserv has the best margins out of those companies though - those numbers are 41.39% gross and 22.97% operating.

BMC Software Inc. is a developer of application software that doesn't offer dividends. On the other hand, I wouldn't be surprised if BMC Software moves higher in the coming months. The company just released a terrific earnings report. Although revenue was a bit of a disappointment, BMC Software reported earnings per share of 11 cents higher than analysts were expecting. Professional revenue and maintenance revenue fared the best, while license revenue actually declined a bit. Also during the earnings release, BMC Software talked a little about its planned acquisition of Numara Software. That company provides management services for information technology and figures to be a solid addition to BMC Software's lineup. As for value metrics, BMC Software compares well with CA Technologies (NASDAQ:CA), Hewlett Packard (NYSE:HPQ) and IBM (NYSE:IBM). For instance, the stock has a price/earnings to growth ratio of 1.30, which is only slightly higher than the ratios for those other companies. In fact, that slightly higher ratio can be explained by BMC's terrific margins - those numbers are 75.05% gross and 27.38% operating. Based on what I'm seeing in the earnings transcript, BMC Software's margins should continue to stay high. Specifically, I am predicting that Remedy OnDemand and Remedyforce - two software-as-a-service solutions - will see significant growth with very little additional cost.

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

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