Two Stocks Trading Well Below Targets

Allstate (ALL - commentary - Trade Now), last sale $29, will probably be weak at least on the opening, since earnings of 99 cents a share fell slightly short of estimates. We feel that the Street got ahead of itself with expectations, as most property and casualty stocks reported strong earnings due to the absence of major storms. Allstate derives about two-thirds of its premium volume from auto insurance, so it is subject to different variables from those of the larger, more diverse insurers.

Newly issued policies were up 12%, and the renewal ratio improved to 89.1%. Policies in force did decline slightly to by 1.3%, as there was a smaller pool of policies in force that were eligible to renew. My partner at Soleil, Harry Fong, who follows the group, would not be deterred from buying the stock. At a 15% discount to book and at only 6.7 times our estimate of $4.35 for 2010, we feel that a target of $38 is reasonable. That price would be equal to one times the book value that we think will be reached by the end of next year.

Century Tel (CTL - commentary - Trade Now), last sale $34, reported a better-than-expected quarter, and Mike Nelson continues to recommend the stock. The company is in the early stages of consolidating its recent acquisition of Embarq, which could bring savings of over $400 million. Century is an "old fashioned" phone company relying on land-line access lines, which are in decline. We believe it is better positioned than most, considering the nature of its geographic territory.

The company has a solid balance sheet, very strong free cash flow generation and an 8.9% dividend yield supported by a payout ratio of only 52%. For conservative, yield-oriented investors, we feel Century makes sense. We have a $40 price target.

A note on the productivity news this morning: Nonfarm productivity rose a remarkable and astonishing 9.5% vs. last month. This is one of the biggest monthly jumps on record. It makes tomorrow's report on payrolls even more important. What we want to see would be an increase in the workweek from an all-time low of 33 hours and an uptick in hourly pay. With productivity so high, corporate profits are robust enough to allow additional workers to be hired. You can get only so much out of a workforce, and we feel that the jobs outlook is going to turn sooner than most expect.

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At the time of publication, Farrell had no positions in stocks mentioned.

Vincent Farrell Jr. is chief investment officer for Soleil Securities Group and a regular guest on CNBC and other national print and broadcast media.

Prior to joining Soleil in August 2008, Farrell was a principal of Scotsman Capital Management. Before that, he was chairman of Victory Capital Management of Cleveland and chairman of Victory SBSF Capital Management in New York. He was a founding partner of Spears Benzak Salomon & Farrell, which was acquired by KeyCorp in 1995. Vince held a variety of positions in his 23 years at SBSF, including chief investment officer, and he served as the portfolio manager on a number of the firm's largest client relationships.

Prior to joining SBSF, Vince spent nine years at Smith Barney as a vice president, sales.

Vince graduated from Princeton University in 1969 and received his MBA from the Iona College Graduate School of Business in 1972.