3 Stocks With Recent Losses But Double-Digit Upside In 2012

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Includes: C, GLW, MT
by: Takeover Analyst

What follows is a list of companies that have fallen more than 25% over the last 52 weeks, are rated "buys" on the Street, and, by my calculations, have double-digit upside. They cover a variety of industries: Steel, financials, and telecom equipment. Based on my review of the fundamentals and multiples analysis, I find the strongest upside for ArcelorMittal (NYSE:MT) - a preference shared by the Street. Note that all ratings are sourced from T1 Banker.

ArcelorMittal

ArcelorMittal is rated near a "strong buy" and trades at a respective 24.1x and 6.2x past and forward earnings with a dividend yield of 3.6%. It has fallen 43.8% over the last 52 weeks.

Consensus estimates for ArcelorMittal's EPS forecast that it will grow by 69.2% to $2.20 in 2012 and then by 54.5% and 8.5% in the following two years. Assuming a multiple of 12x and a conservative 2013 EPS of $3.34, the stock may nearly double. Despite yielding a devastating loss of $0.65 per share in the fourth quarter, concerns about leverage have been exaggerated. Management was able to reduce net debt by 10% and has plenty of opportunities to sell off non-core assets. I believe that the company's ability to maintain its credit rating will prove doubly beneficial in the event of a recovery. Capacity closures are improving margins and have highlighted the firm's operational flexibility.

Citigroup (NYSE:C)

Citigroup is rated a "buy" and trades at a respective 9.5x and 7.3x past and forward earnings with a dividend yield of 0.1%. It has fallen 27.1% over the last 52 weeks.

Consensus estimates for Citigroup's EPS forecast that it will grow by 9.2% to $4.03 in 2012 and then by 16.6% and 10.6% in the following two years. Assuming a multiple of 9x and a conservative 2013 EPS of $4.65, the rough intrinsic value of the stock is $41.85, implying 22.7% upside. The company similarly had a poor close to the year, but the fundamentals are improving. Tier 1 Common Ratio an NIM are both increasing, and management will easily be able to mitigate the cost base by around $3 billion this year.

Corning (NYSE:GLW)

Corning is rated a "buy" and trades at a respective 7.3x and 8.6x past and forward earnings with a dividend yield of 2.3.% It has fallen 43.2% over the last 52 weeks.

Consensus estimates for Corning's EPS forecast that it will decline by 21.6% to $1.38 in 2012, grow by 9.4% in 2013, and then hold flat in 2014. Assuming a multiple of 12.5x and a conservative 2013 EPS of $1.45, the rough intrinsic value of the stock is $18.13, implying 39.6% upside. Despite significant headwinds in 2011, sales nearly tripled in Gorilla Glass and the company delivered positive free cash flow for the eighth consecutive year. New products, like Lotus Glass and Gorilla Glass 2, will keep the momentum going into a full recovery. Management, moreover, has showcased confidence over the fundamentals by boosting its capital allocation policy. And even though the industry suffered from dramatic declines, Corning was able to - some might say "miraculously" - keep margins above consensus at 43.7% in the recent quarter.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in GLW, C, MT over the next 72 hours.

Additional disclosure: We seek to provide investor relation services for all of the firms in our coverage, but research covered in this note is independent and for prospective clients. The distributor of this research report, Gould Partners, manages Takeover Analyst and is not a licensed investment adviser or broker dealer. Investors are cautioned to perform their own due diligence.