Jensen: Two Cheap Stocks with Growing Prospects

Earnings season kicks off in earnest this week with reports from key S&P 500 components like Citigroup (C), General Electric (GE), Microsoft (MSFT) and others.

This quarter is set to post the first sequential decline in overall S&P 500 earnings in three years. The profit picture has deteriorated significantly over the past four to six weeks. Analysts have ratcheted down estimates for the majority of companies in the energy, materials, industrial and tech sectors on concerns over European, slowing worldwide growth and a strong U.S. dollar. Many companies in these sectors have taken major hits to their share prices as a result. One strategy I am employing is to allocate funds to cheap equities whose earnings estimates have actually gone up over the past three months when the majority of stocks were being revised down. Here are two that I like.

United Stationers (USTR) engages in the wholesale distribution of business products in North America. Four reasons USTR offers solid value at less than $28 a share:

• Consensus earnings estimates for 2012 have moved up 1% over the last three months. Consensus projections for 2013 have moved up 3% over the same time span and now stand at $3.09 a share. The company has beat estimates each of the last three quarters.
• USTR is selling at less than 9x forward earnings, a discount to its five-year average (11.9), and the stock provides a 1.9% dividend yield.
• The company managed to raise earnings at better than a 5% annual clip over the last five years despite the economy and the challenges in the office supply market. USTR sports a low five-year projected price/earnings/growth ratio (0.73), and it is expected to have sales growth of 3% to 4% for 2012 and 2013.
• The five analysts covering the stock have price targets that range between $32 and $57 a share. The stock was above $34 a share earlier in the year.

NCR Corp. (NCR) provides products and services that enable businesses to connect, interact, and transact with their customers worldwide including ATMs. Four reasons NCR is a bargain at less than $23 a share:

• Consensus earnings estimates for 2013 have improved some 8% over the past three months. The company also has easily beaten earnings estimates each of the last six quarters.
• NCR is selling for less than 8.5x forward earnings, a solid discount to its five-year average (13.9).
• The median price target for the nine analysts covering the stock is $28 a share. RBC Capital initiated the shares with an Outperform rating in May and J.P. Morgan pushed its price target up to $30.50 from $28 in the second quarter.
• NCR has good growth prospects. Analysts expect 6% to 9% annual sales growth over the next two years and the company has a five-year projected PEG of less than 1 (.64).

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