Oils Lead Top 5 Value Stocks

Oil companies take the top three spots among all-around value leaders.
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Each weekday, 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 its Web site.

This list, updated daily, 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.

First up is Rio de Janeiro-based oil company

Petrobras-Petroleo Brasileiro

(PBR) - Get Report

, which has had a buy rating since May 2005. The company's strengths include stellar revenue growth, a steady pattern of EPS growth over the past two years, improved return on equity and impressive increases on net operating cash flow.

Although Petrobras might have a few minor weaknesses, they are unlikely to have a significant impact on results.

Oil refiner

Valero Energy

(VLO) - Get Report

has been rated a buy since May 2005. The company displays impressive net income growth and a healthy return on equity and leverage level. It has a solid outlook and a strategic capacity expansion at its Port Arthur refinery, improving overall throughput capacity by 30,000 barrels a day. Valero's performance depends on the future movement of crude oil prices and its impact on sour crude oil discounts. Furthermore, an increase in operating cost is a cause of concern.

Hess

(HES) - Get Report

is involved in every aspect of crude oil and natural gas from exploration to distribution, and it has earned a buy rating since May 2005. The company has shown steady top-line growth and increased revenue, primarily due to increased production volumes. Revenue growth also was driven by a combination of higher average crude oil selling price and production, as well as higher gas sales volume.

Hess recently made significant investments in oil and gas exploration at a time when oil prices were close to record levels. Any unexpected sharp downturn in oil and gas prices may hurt earnings. Exploration disruptions also could harm results.

Insurance and financial services company

MetLife

(MET) - Get Report

has merited a buy rating since March 2005. With a strong market position and favorable industry trends, the company is positioned for continued strong financial performance.

MetLife has bolstered its market position in the core insurance and annuity business with its acquisition of Travelers Insurance and the completion of a distribution agreement with

Citigroup

(C) - Get Report

in 2005. This has given it one of the broadest distribution networks in the sector. Ongoing consolidation within the industry will lead to sustained growth.

Risks include changes in interest rates, equity prices and any slowdown of the economy.

Rounding out the list is financial services firm

Prudential

(PRU) - Get Report

, which has been rated a buy since March 2006. The rating is based on favorable industry trends due to positive trends in the employment market coupled with improving corporate confidence, as well as recent acquisition and joint ventures. The company has seen income growth from continuing operations, and a $3 billion stock repurchase plan is scheduled for fiscal-year 2007, which could boost EPS, return on equity and the share price.

The main risks could arise from any sharp fluctuation in equity markets, decline in investment spreads, negative competitive evens on premium rates, adverse regulatory developments and unexpected catastrophic events.