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Best Stocks for 2013
Submitted by Value Stock Guide as part of our
contributors program
What a difference does a year make for value investing
practitioners!
When I ran this screen last year, I came up with 31 large cap
stocks that offered a nice blend of earnings growth and good
valuations. The same screen today returns a mere 2 stocks. So what
has happened? Looking closer at the number of stocks different
filters in this screen have removed, it appears that the biggest
culprit is the expanding price to earnings multiples. This may be
either because earnings have not grown much while the price
continued to be elevated, or investors have bid up the price of the
stocks to unsustainable levels.
Either way, if you primarily invest in large caps, I would
recommend looking at smaller companies for capital gains in 2013.
This also says to me that in 2013 we should probably not expect the
market (S&P 500 index, for example) to post great returns and
it will underperform 2012. I may turn out to be wrong if the GDP
growth is red hot in 2013 but that is a risk I am willing to take
The screen itself was run to look for stocks with the following
attributes:
- P/E under 15 but positive
- P/B under 1.5 but positive
- EPS growth in the Top 40%
of its industry
- Expected EPS Growth > 15%
Coming back to the screen, the only 2 large cap stocks you
should consider investing in 2013 are Corning and National Oilwell
Varco. Let's look at these 2 companies.
1. Corning (
GLW
):
|
Industry
|
Electronic Components |
|
Market Value
|
18.7B |
|
P/E
|
10.13 |
|
P/B
|
0.86 |
|
PEG
|
0.82 |
|
5 yr EPS Growth
|
2.58% |
|
Dividend Yield
|
1.81% |
|
ROE
|
9.5% |
|
L/T Debt/Capital
|
0.13 |
|
Current Ratio
|
4.8 |
A 160 year old company, Corning has reinvented itself more
times in its history than any other company to keep itself
relevant as the technologies evolve. The company today makes LCD
displays for computers and televisions, optical fiber cables and
equipment, emissions control products, and laboratory products.
The stock pays a respectable 2.8% dividend and if you had bought
the stock a year ago, your total returns would have been zero.
The stock has underperformed lately as the demand for LCD panels
appear to be declining (Large screen TVs), although smartphone
market around the world has seen rapid growth. The key to
keep in mind is that this market is quite oligopolistic with only
a few major player (Corning, Asahi and NEG) and as such,
producers have tremendous leverage that they can use if
necessary. The valuations are very attractive and given that it
has $4.3/share in cash on the books ($3B more than the total
debt), the real multiple that the ongoing business sells for
(taking the cash out 1 for 1) is only 6.65 times earnings.
Attractive? You decide!
2. National Oilwell Varco (
NOV
):
|
Industry
|
Oil & Gas Equipment and Services |
|
Market Value
|
28.6B |
|
P/E
|
12.05 |
|
P/B
|
1.48 |
|
PEG
|
0.73 |
|
5 yr EPS Growth
|
4.47% |
|
Dividend Yield
|
0.66% |
|
ROE
|
12.2% |
|
L/T Debt/Capital
|
0.06 |
|
Current Ratio
|
2.4 |
Another ancient company, founded in 1862, National Oilwell
Warco primarily manufactures and supplies equipment for oil
drilling and production, onshore and offshore rigs, and covers
products and services in all parts of the oil production and
distribution supply chain. The company has grown its earnings
this year by 15% while the stock has remained flat. Its earnings
in the next 5 years are expected to grow a little better than the
industry while the stock sells at a P/E ratio of 12, an almost
35% discount to the industry average P/E ratio.
Buffett owns 2.84 million shares of NOV
.
Also keep in mind that it is now probably less a matter of
"if" and more of "when" drilling in US goes full steam ahead.
That will be a catalyst for most stocks in this sector, but more
so for NOV dues to the steep discount it offers today compared to
companies like Schlumberger (P/E=17).
Keep in mind that this is just 1 screen and there may be other
great values to be found that are not uncovered in this screen.
Review other screens as they are posted and do not forget to do
your own due diligence before committing any capital to any of
the stocks mentioned.