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5 Unknown Stocks to Buy Now
Posted by: Vatalyst.com (IP Logged)
Date: March 29, 2012 06:56AM
Being a good investor consists of finding the cheapest stock with the lowest levels of risk and adding them to your portfolio, if they fit your criteria. However, that is not always an easy task, especially because there are thousands of stocks to choose from. Occasionally, the best investments are the ones very few investors know about. The following is an analysis of five unknown stocks to buy now. Most of these stocks have depreciated in value over time, which means right now might be a good time to grab some shares.
Frontier Communications (FTR) distributes an annual dividend of $0.40, has a yield of 9.10% and a payout ratio of 500%. Revenue over the last four years has been increasing at a CAGR of 23.73% while income has been decreasing at a CAGR of 4.87% during the same period, an indication of management’s inability to control costs. More specifically, earnings per share (TTM) came in at $0.15 while its competitors AT&T (T) and CenturyLink (CTL) reported earnings of $0.67 and $1.07, respectively.
For fiscal year 2011, Frontier Communications had a debt to equity ratio of 1.85 while AT&T and CenturyLink had 0.61 and 1.05, respectively. In addition, Frontier’s price to earnings ratio of 30.40 is lower than AT&T (45.88) and CenturyLink (36.72), which confirms how investors may not be willing to pay a premium for a stock with higher debt and lower earnings than its competitors. Nevertheless, the stock looks cheaper when compared to its competitors, primarily because the stock is trading at a price to sales ratio of 0.81x when the industry average is 1.44x price to sales. Thus right now might be a good time to snatch some shares before the stock makes a comeback since it’s trading at new lows. Cash flow increased 29% for fiscal year 2011 and I believe Frontier Communications is ready for a big bounce.
Boston Scientific (BSX) has a market cap of $8.59 billion and is currently trading around $6. The stock has been on a bearish trend since 2004, primarily because revenue has been decreasing. For example, revenue during the last four years decreased at a CAGR of 1.36% while the stock was only profitable in fiscal year 2011, but not the preceding three years. As a result, earnings per share were much lower than its competitors. Earnings per share (ttm) came in at $0.29 while its competitors, Johnson & Johnson (JNJ) and St. Jude Medical (STJ), reported earnings (ttm) of $3.49 and $2.64, respectively. The stock has working capital per share of about $0.90, which means the stock is currently trading at about 10x its working capital per share. Boston Scientific has $0.75 in current assets for every $1 in liabilities, which is not a very strong financial position.
In my opinion, the stock has hit bottom because it was almost flat during 2011, which can indicate a rebound if management improves the financial position of the company. In any case, I believe the stock is cheap when compared to its historical trading price of around $40 back in 2004. In addition, the stock is trading at 1.09x price to sales when the industry average is 2.41x. Cash flow increased 25.35% in 2011 after major declines the previous two years; therefore, I think it’s a good time to buy some shares as the stock’s financial position improves and the stock continues to rise higher.
Interpublic Group (IPG) pays an annual dividend of $0.24, has a yield of 2.20% and a payout ratio of 21%. During the last twelve months sales and income increased 8.40% and 189.70%, respectively. On a longer term, revenue over the last four years increased at a small CAGR of 0.09% while income increased at a CAGR of 11.72%. More specifically, earnings per share (ttm) came in at $0.86 while its competitors, Omnicom Group (OMC) and Publicis Groupe SA (PUBGY.PK), reported earnings (ttm) of $3.33 and $1.75, respectively. The industry average is $0.20.
The stock is not as expensive as its competitors because its price-to-earnings ratio is lower. In addition, its price-to-earnings-to-growth (PEG) ratio of 0.93, indicates the stock may be undervalued. The stock has gained 59% during the last four months. More recently, some announcements drove the stock from about $10.80 to $11.10. From a technical perspective, I believe the stock will continue appreciating in value as its business continues to grow from increasing advertising budgets from businesses due to a better economic outlook.
SAIC (SAI): SAIC Inc has a market cap of $4.35 billion and is currently trading at around $13. During the last twelve months sales and income increased 2.50% and 13.20%, respectively. Revenue during the last four years has been increasing at a CAGR of 5.64% while income has been increasing at a CAGR of 10.40% during the same period.
Earnings per share (ttm) came in at $0.99 while competitors CACI International (CACI) and ManTech International (MANT) reported earnings of $5.50 and $3.73, respectively. The stock is not affordable with a five-year expected PEG ratio of 7.82, meaning investors expect a high rate of growth for the stock, thus they are willing to pay a higher premium for each dollar of earnings.
Cash flow increased 58.77% last reporting fiscal year. The stock appreciated in value 13.32% over the last three months. I believe this growth in revenue and cash flow will continue, thus the price of the stock should appreciate in tandem with the improved financial position of the company.
Corning (GLW): Corning Inc. pays an annual dividend of $0.30, has a yield of 2.20% and a payout ratio of 13%. During the last twelve months sales and income increased 19% and 21.20%, respectively. During the last four years revenue has been increasing at a CAGR of 7.32% while income has been decreasing at a CAGR of 14%. During this period, the stock tumbled from around $27 to a low of $8.50 and finally to its current trading price of around $14.
Earnings per share (ttm) came in at $1.77 while competitors Furukawa Electric Co. (FUWAF.PK) Ltd. and Sumitomo Electric Industries Ltd. (SMTOY.PK) reported earnings of -$0.24 and $0.72, respectively. The stock’s price-to-earnings ratio is 7.66, compared to 169.79 for Sumitomo Electric Industries.
The dividend was recently raised from $0.05 to $0.08 and cash flow over the last three years increased 148%. I believe cash flow and revenue will continue to increase, especially as demand for their products increases due to a brighter economic outlook globally. For these reasons I also this rate this stock as a buy.
Stocks Discussed: FTR, BSX, IPG, SAI, GLW,
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