It's pretty easy tospot the major investment winners of the last
has risen from less than $10 in 2003 to nearly $400 today.
Chipotle Mexican Grill (NYSE:
and a few dozen other stocks have also managed to double, triple,
or even quadruple in recent years.
The vast majority of stocks, however, haven't had it so good.
They've repeatedly risen and fell during the past decade, with only
moderate gains to show for their 10-year performance. Bringing up
the rear are the decade's losers, which now sell well below levels
seen a decade ago. Most of them deserve the drubbing they've
received because they've done little to generate any tangible
improvement on their income statements -- and in some cases, they
have lost major ground to rivals.
, for example, have fallen 90% since 2001. The company should have
never ceded ground to new smartphones such as the iPhone, and
chances are, the company will never regain its former luster.
But rummaging through the waste bin of the last decade, some
companies still have a solid shot at regaining lost glory. They're
at least so cheap now, that value investors are bound to take
notice, even if growth prospects are dim. Here are three former
highflyers that are finally worth a second look.
1. Xerox (NYSE:
Price on Sept. 9, 2001: $8.62
Recent price: $7.41
This company is the
story that gets no respect. During the past two years, this
office-equipment supplier has radically pared costs while making a
in the outsourced services segment, acquiring Affiliated Computer
Services (ACS) for $6.4 billion in 2010.
The combined entities have hardly created a growth platform --
sales are expected to grow in the low single-digits in 2011 and
2012 -- but thecash flow strength is quite impressive. Xerox now
generates roughly $2 billion in annual
free cash flow
. Further identified cost-savings yet to come should help maintain
free cash flow at or above current levels. Using free cash flow as
a gauge, analysts think shares can rise to $12 or $14, yielding at
least a 50% gain.
2. Cisco Systems (Nasdaq:
Price on Sept. 7, 2001: $14.26
Recent price: $15.82
Thanks to a recent rally, shares of Cisco finally pushed back up
above levels seen 10 years ago. But it's surely been a trying path
to get there. For much of the past two years, Cisco has looked like
an attractive value play to me and a handful of sell-side analysts,
yet shares have moved ever lower anyway, known as a "value trap."
By the time shares moved below $14 in early August, the crowd of
Cisco's believers started to grow, noting that current prices are
at a sharp disconnect from Cisco'scash flow statement , even if
growth remains anemic. Even with a heavy slate of annual capital
spending, Cisco has still managed to generate at least $8 billion
in annual free cash flow in each of the past five fiscal years.
This has forced the company's
to swell with $42 billion in cash ($26 billion on a net cash
The rising tide of cash has enabled Cisco to shrink its share count
for eight straight years, from 7.2 billion in 2003 to a recent 5.5
billion. Yet investors won't really embrace Cisco until it can
prove itself as a re-freshened growth story. Recent quarterly
results provide a hopeful sign. Fiscal fourth quarter results for
the period ended July saw revenue of $11.2 billion, $300 million
higher than the consensus forecast. Looking ahead, the company saw
of business grow by at least 10% (from a year earlier) in Routing
(up 17%), Services (13%), Collaboration (11%), TelePresence (35%),
Data Center (35%) and Commercial (19%). Only Cisco's Switching
(-5%) and government businesses (-7%) are lagging right now.
Overall, sales are unlikely to grow at a double-digit pace until
is healthier. But with shares trading at around nine times
projected fiscal (July) 2012 profits and less than six times
before interest, taxes,
basis), shares appear poised for better results in the decade ahead
compared to the last decade.
3. AMD (NYSE:
Price on Sept. 7, 2001: $11.50
Recent price: $6.52
This chip maker showed real promise in the middle of the last
decade. Its Opteron micro-processors were very popular with PC and
server vendors, but its momentum faded as mighty
I ran through AMD's
in late July, (
which you can read about here
) and little has changed since then. Part of the company's
turnaround plans are based on a successor to Opteron, known as
"Bulldozer." Those chips just started shipping to customers this
week, and we won't need to wait too long to get a sense of how much
demand the chip will see. AMD is likely to discuss the chip's
progress when quarterly results are released in October. This will
also provide investors with the first communication from new
Rory Read, who was hired in late August from PC giant Lenovo. In my
view, he's inheriting a business that is far healthier than many
suspect, and I still see more than 50% upside in this stock.
Risks to consider:
All of these companies are exposed to tech spending trends, and
if tech budgets get sharply slashed in coming quarters, then growth
forecasts for 2012 will have to be reduced.
Action to Take -->
Other blue chip stocks that trade at or below 2001 prices that
still hold great long-term appeal include
Ford Motor (NYSE:
(40% lower) and
(65% lower). These companies have all gone through painful
restructurings, but look to be in fighting shape these days. After
a decade of under-performance, outperformance could be the theme
for these stocks for the coming decade. I see all stocks mentioned
here as having 50% upside -- or more.
-- David Sterman
Disclosure: Neither David Sterman nor StreetAuthority, LLC hold
positions in any securities mentioned in this article.
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