David Sterman
As I noted last week, investors should take note of the increasingly inexpensive valuations on many stocks. Stocks are priced "on sale" only once every five to 10 years, and this is one of those periods.
With that in mind, I have been slicing and dicing the S&P 500, looking for great values. A host of blue-chips are selling at multiyear lows, and many of them are poised to rebound when the economic cycle turns. I narrowed my search in this group to stocks that had unusually low price-to-earnings ratios, notably high dividend yields, stable cash flows from cycle to cycle and reasonable payout ratios. Some S&P 500 stocks are trading at or below 12 times projected 2008 earnings and carry dividend yields above 5%. (See the chart at the bottom of this page.) To be sure, these companies are facing notable headwinds: CBS (CBS Quote - Cramer on CBS - Stock Picks) and Gannett (GCI Quote - Cramer on GCI - Stock Picks) are in the midst of major media industry turmoil and have been written off for dead (prematurely, in my mind). Others, such as Altria (MO Quote - Cramer on MO - Stock Picks) and Reynolds American (RAI Quote - Cramer on RAI - Stock Picks), are simply huge cash cows in the terminally ill tobacco industry. The industry's death could take decades to play out, and these firms will reap tons of cash flow in the interim. Altria, through its planned acquisition of smokeless tobacco vendor UST (UST Quote - Cramer on UST - Stock Picks), and Reynolds America, with recent big cuts in head count, are continuing to find ways to boost profits in the near term. Still others, such as Embarq (EQ Quote - Cramer on EQ - Stock Picks), CenturyTel (CTL Quote - Cramer on CTL - Stock Picks) and Qwest (Q Quote - Cramer on Q - Stock Picks), are spinning off lots of cash flow while they wait for the telecom service provider consolidation trend to arrive at their door. You could do worse than buying companies simply for their terminal cash flow right now. With the exception of utility stocks on the list, Host Hotels (HST Quote - Cramer on HST - Stock Picks) CBS and perhaps Gannett, most of these companies may never grow again, but the present value of projected future cash-flow streams makes the current share prices a bargain.| S&P 500 Bargains Stocks With Low PEs, High Dividend Yields and Stable Cash Flows |
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| Ticker | Current | Annual | Dividend | 2008 | P/E Excl | |
| Price | Dividend | Yield (%) | EPS | Extra, LFY | ||
| Altria Group | MO | $20.05 | $1.28 | 6.4% | $1.67 | 12.0 |
| CBS | CBS | $15.05 | $1.08 | 7.2% | $1.87 | 8.0 |
| CenterPoint Energy | CNP | $14.64 | $0.73 | 5.0% | $1.26 | 11.6 |
| CenturyTel | CTL | $37.91 | $2.80 | 7.4% | $3.35 | 11.3 |
| Constellation Energy | CEG | $25.49 | $1.91 | 7.5% | $5.31 | 4.8 |
| Embarq | EQ | $42.31 | $2.75 | 6.5% | $5.32 | 8.0 |
| Gannett | GCI | $17.88 | $1.60 | 8.9% | $3.60 | 5.0 |
| Host Hotels & Resorts | HST | $13.45 | $0.80 | 5.9% | $1.77 | 7.6 |
| NiSource | NI | $15.14 | $0.92 | 6.1% | $1.27 | 11.9 |
| ProLogis | PLD | $39.54 | $2.07 | 5.2% | $4.29 | 9.2 |
| Qwest | Q | $3.58 | $0.32 | 8.9% | $0.41 | 8.7 |
| Reynolds American | RAI | $50.53 | $3.40 | 6.7% | $4.58 | 11.0 |
| Windstream | WIN | $11.25 | $1.00 | 8.9% | $1.08 | 10.4 |
| Source: First Call Prices intraday 09/26/08 |
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