BOSTON ( TheStreet) -- The Dow Jones Industrial Average has outpaced the S&P 500 Index and Nasdaq Composite in 2011, perhaps indicating that high-quality stocks are taking the lead in this maturing bull market. The following five dividend-paying Dow stocks, still undervalued on a historical basis and relative to peer investments, are safe bets as the economy strengthens. Below, the stocks are ordered by forward earnings multiple.
5. Chevron (CVX) is an integrated oil and gas company, with exploration, production and refining operations. Chevron is still remarkably cheap, despite ranking as the best-performing Dow stock of 2011 so far, with a 19% gain. It trades at a trailing earnings multiple of 11, a forward earnings multiple of 9, a book value multiple of 2.1, a sales multiple of 1.1 and a cash flow multiple of 6.9, 56%, 35%, 59%, 55% and 25% discounts to oil and gas industry averages. Its PEG ratio, a measure of value relative to growth, of 0.6 demonstrates a 40% discount to fair value.
Chevron's fourth-quarter net income surged 72% to $5.3 billion, or $2.64 a share, as revenue gained 9.3% to nearly $50 billion. Its gross margin widened from 21% to 24% and its operating margin expanded from 10% to 13%. Chevron held $17 billion of cash and $11 billion of debt at quarter's end, for a quick ratio of 1.3, a debt-to-equity ratio of 0.1 and a net cash position of $5.6 billion. Chevron receives "buy" calls from 75% of analysts in coverage, indicating optimism.Bullish Scenario: Credit Suisse forecasts that Chevron will rise 20% to $130 in 12 months. Bearish Scenario: JPMorgan predicts that the stock will fall 14% to $93 during 2011.
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