Top Five All-Around Value Stocks

Hess, Chevron, Berkshire Hathaway, General Dynamics and AT&T are all on top.
By TheStreet Ratings Staff ,

Each business day, TheStreet.com Ratings compiles a list of the top five stocks in five categories -- fast-growth, all-around value, large-cap, mid-cap and small-cap -- and publishes these lists in the Ratings section of our Web site.

This list is based on data from the close of the previous trading session. Today, all-around value stocks are in the spotlight. These are stocks of companies that meet a number of criteria, including annual revenue of more than $500 million, lower-than-average valuations such as a price-to-sales ratio of less than 2, and leverage that is less than 49% of total capital.

In addition, they must rank near the top of all stocks rated by our proprietary quantitative model, which looks at more than 60 factors. The stocks must also be followed by at least one financial analyst who posts estimates on the Institutional Brokers' Estimate System. They are ordered by their potential to appreciate.

Note that no provision is made for off-balance-sheet assets such as unrealized appreciation/depreciation of investments, market value of real estate or contingent liabilities that might affect book value. This could be material for some companies with large, underfunded pension plans.

Hess

(HES) - Get Report

explores for, produces, purchases, transports and sells crude oil and natural gas. The company conducts exploration and production activities in Algeria, Denmark, Norway, Malaysia, the U.K. and the U.S. The company also manufactures, purchases, trades and markets refined petroleum and other energy products.

We have rated Hess a buy since August 2004. The company displayed excellent performance in the fourth quarter of 2007 on the back of rising production and pricing trends because of successful exploration and development activities. Revenue increased 32% year over year to $9.46 billion. Net income increased 42%, mainly because of lower operating costs and lower taxes. We believe Hess can leverage its strong fundamentals to continue to benefit from the current pricing trend.

While oil prices are currently trading at a record level, these prices are also highly volatile and cyclical in nature. Because Hess generates a significant portion of its income from the production of oil and gas, any unexpected sharp downturn in oil prices could negatively affect earnings. Such a downturn could occur if high oil prices generate demand for low-cost alternatives, or if the slowdown in the U.S. economy and weakness in the U.S. labor market put pressure on the demand for oil and gas products.

Chevron

(CVX) - Get Report

is one of the world's largest integrated energy companies. It is engaged in every aspect of the oil and natural gas industry, with major operations in many important gas and oil producing regions worldwide. Household products, packaging and fuel additives are made from the chemicals that Chevron produces. The company also works in manufacturing, marketing and transportation, along with other interests including coal mining power generation, cash management and debt financing, corporate administration, insurance, real estate and technology. Chevron is headquartered in California and conducts operations in more than 100 countries.

We have rated Chevron a buy since October 2003. This rating is based on the company's strong revenue growth, an improved leverage level, and the effects of higher prices for crude oil and natural gas. Net sales for the fourth quarter of fiscal 2007 grew 30% year over year to $59.9 billion, boosted by increases in the average sales price per barrel of crude oil.

The company reported a net income of $4.9 billion, or $2.32 a share, vs. $3.8 billion, or $1.74 a share, in the fourth quarter of 2006. Additionally, Chevron improved its debt-to-equity ratio by decreasing total debt and increasing shareholders' equity, which also led to a decline in interest expenses.

Chevron is currently expanding its natural gas business, and during the fourth quarter signed a 30-year production sharing contract with China National Petroleum. Production volume will also be increased in upcoming quarters by expansion projects at the Tengiz Field in Kazakhstan, of which Chevron owns 50%. Bear in mind, however, that the company's performance depends largely on the movements of crude oil and natural gas prices. Any adverse changes in these prices could negatively impact revenue. Furthermore, lower sales volumes and margins on the sale of refined products could also negatively affect the company's bottom line.

Berkshire Hathaway

(BRK.B) - Get Report

is a holding company whose insurance and reinsurance activities are conducted through more than 60 domestic and foreign-based insurance companies. Additionally, the company's subsidiaries write property and casualty insurance; sell building products and architectural coatings; supply connector products and engineering software; manufacture apparel and aircraft; provide high-technology training for aircraft; and operate utility and energy businesses.

Berkshire Hathaway has been rated a buy since April 2003. The company's strengths can be seen in multiple areas, such as revenue growth and solid stock price performance. Revenue rose 6.9% year over year for the fourth quarter of fiscal 2007. Overall, the company's 76 operating businesses performed well, although businesses linked to the housing market faced challenges.

Berkshire Hathaway moved to diversify its business during the fourth quarter by creating Berkshire Hathaway Assurance to guarantee municipal bonds. For fiscal 2007, the company earned $13.21 billion, which represents an increase of 20% compared with fiscal 2006 results. Total revenue for the full year also grew 20% to $118.24 billion.

Looking forward, even the best stocks can fall in an overall down market, but in any other environment, this stock still has good upside potential despite its gains in the past year.

General Dynamics

(GD) - Get Report

designs, develops, manufactures and supports technology, products and services for use across a spectrum of military operations. The company's businesses include mission-critical information systems and technologies; land and expeditionary combat vehicles, armaments and munitions; shipbuilding and marine systems and business aviation. The company's products include nuclear submarines, targeting systems, tactical Personal Digital Assistants and Gulfstream business-jet aircraft. In addition, a small resources group operates two underground coal mines and several stone quarries, as well as sand and gravel pits and yards.

Our buy rating for General Dynamics has not changed since July 2003. This rating is based on strengths such as revenue growth, an impressive record of EPS growth, and compelling improvement in net income. Revenue rose 11% year over year for the first quarter of fiscal 2008. This growth appears to have boosted the company's earnings, which improved by 33%. Net income also increased, rising 32% to $572 million. General Dynamics' debt-to-equity ratio was most recently very low at 0.24, implying successful management of debt levels.

While the stock is trading higher than it was a year ago, it should go without saying that even the best stocks can fall in an overall down market. We believe that the company's strengths outweigh weak operating cash flow and potential difficulty in covering short-term cash needs.

AT&T

(T) - Get Report

is the largest communications holding company in the world by revenue, providing communication services and products in the U.S. and 240 other countries. It offers services to both residential and business customers, as well as other providers of telecommunications services worldwide. AT&T markets its products and services under several brand names, including AT&T and Cingular Wireless.

AT&T has been rated a buy since March 2006. The company reported a 22% increase in revenue for the first quarter of fiscal 2008, helped by strong growth in wireless revenue, which soared 18% year over year. Net income for the quarter rose to $3.46 billion, or 57 cents a share, from $2.85 billion, or 45 cents a share, in the first quarter of 2007. Total operating revenue rose 6.1%.

The company recently acquired Edge Wireless, a provider of wireless communications services in Oregon, northern California, Idaho and Wyoming. Finally, AT&T's total wireless subscriber base stood at 71.4 million at the end of the quarter.

Looking ahead to the full-year fiscal 2008, AT&T expects its adjusted EPS to grow by double digits year over year. Additionally, to achieve more operational efficiency, the company plans to lay off around 4,600 employees. Keep in mind that risks to the rating include intense competition from wireline and cable operators, merger-related challenges, the company's lower liquidity position and a decline in return on equity. These factors could restrict the company's growth prospects in the coming quarters.

Our quantitative rating is based on a variety of historical fundamental and pricing data and represents our opinion of a stock's risk-adjusted performance relative to other stocks.

However, the rating does not incorporate all of the factors that can alter a stock's performance. For example, it doesn't always factor in recent corporate or industry events that could impact the stock price, nor does it include recent technology developments and competitive dynamics that may affect the company.

For those reasons, we believe a rating alone cannot tell the whole story, and should be part of an investor's overall research.

This article was written by a staff member of TheStreet.com Ratings.

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