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
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.
First up is
, one of the nation's largest grocery retailers. The company, which also manufactures and processes some of the foods that it sells in its supermarkets, operates nearly two dozen banners, including supermarkets such as Kroger, Ralphs, and Hilander; price-impact warehouse stores Food4Less and Foods Co; multidepartment stores such as Fred Meyer and Smith's Marketplace; convenience stores such as KwikShop and TurkeyHill; and jewelry stores such as Littman Jewelers and Barclay Jewelers.
The company also operates Kroger Personal Finance. Kroger's corporate brand products are produced and sold in three tiers. The premium quality brand is called Private Selection. The banner brand (Krogers, Ralphs, etc.) is designed to be equal to or better than the competitive national brand. It also has a value brand, called FMV (For Maximum Value). The company celebrated its 125th anniversary in 2008.
Our buy rating for Kroger has been in place since March 2006. Although the company has generally had poor debt management, we feel that the rating is justified due to strengths such as the company's return on equity, attractive valuation levels and growth in revenue, net income and earnings per share (EPS). For the first quarter of fiscal 2008, Kroger reported a year-over-year revenue increase of 11.5%, while net income grew 14.5%.
EPS also improved, rising 23.4% from 47 cents in the first quarter of fiscal 2007 to 58 cents in the most recent quarter. The company's total sales increased 11.5%, while identical supermarket sales increased 9.2% with fuel and 5.8% without fuel. Return on equity also improved slightly in the first quarter, rising to 24.7% from 21.8% in the prior-year quarter.
On the basis of a strong start to fiscal 2008, Kroger raised its identical sales and earnings guidance for fiscal 2008. Management now anticipates identical sales growth of 4% to 5.5%, excluding fuel, while estimating EPS of $1.85 to $1.90. The company had previously released earnings guidance of $1.83 to $1.90 a share. While management is confident in the underlying strength of the company's business model, bear in mind that future financial results could be negatively impacted by increased competition, weather and economic conditions, interest rates and labor disputes, among other factors.
Next up is
, a worldwide integrated energy company that's headquartered in Houston and operates in nearly 40 countries. It centers its business on four core activities: exploration and production; refining, marketing, supply and transportation; natural gas gathering, processing and marketing; and chemicals and plastics.
ConocoPhillips is currently exploring for oil, natural gas and natural gas liquids around the world in 23 countries, with production in 16 countries. It operates 12 refineries in the U.S., six in Europe and one in Asia. The company has a 50% interest in Chevron Phillips Chemical Co., which produces chemicals and plastics worldwide. In addition, ConocoPhillips works to develop energy sources and new technologies based on its expertise and existing businesses.
ConocoPhillips has been rated a buy since April 2003. While the company currently shows low profit margins, we feel that strengths such as its robust revenue growth, compelling growth in net income, attractive valuation levels and notable return on equity justify our rating. For the second quarter of fiscal 2008, the company's revenue surged 55.5% year over year. This appears to have helped boost earnings, which rose dramatically from 18 cents a share in the second quarter of fiscal 2007 to $3.50 a share in the most recent quarter.
At the same time, net income increased 1,707% in the second quarter. Net operating cash flow increased 14%, while the company's return on equity exceeded that of the same quarter one year prior, rising from 12.9% to 19.1%. The company recently signed an interim agreement to develop the Shah gas field in Abu Dhabi and also approved the continued funding for the development of the Yanbu Export Refinery Project. Additionally, the company plans to expand the Keystone crude oil pipeline system in North America.
Looking ahead, management anticipates full-year fiscal 2008 production to be consistent with the company's operating plan. The company has authorized a $10 billion share-repurchase program for fiscal 2008 and expects to repurchase between $2 billion and $3 billion in the third quarter. Bear in mind that crude oil and natural gas prices are highly volatile and cyclical in nature. A downturn from the currently high pricing trends could affect the future profitability of the company, as could further slowdown of the U.S. economy.
Next we have
, which designs, manufactures, distributes and services diesel and natural gas engines, electric power generation systems and engine-related products. These products include filtration emissions solutions, fuel systems, controls, and air-handling systems. The Columbus, Ind., company serves customers in more than 160 countries through a network of 550 company-owned and independent distributor facilities and more than 5,000 dealer locations.
Cummins has been rated a buy since March 2004. Despite its low profit margins in the second quarter of fiscal 2008, we are impressed by the company's revenue growth, stock price performance and improved EPS. The company reported that its second-quarter financial results were the best in company history, largely due to strong global demand.
Cummins' revenue rose 16.3% year over year. This appears to have helped boost the company's EPS, which improved 39.9% compared to the prior year's quarter. EPS rose to $1.49 in the second quarter from $1.07 in the same quarter of fiscal 2007. Net income rose 36.9%, rising from $214 million a year ago to $293 million. Additionally, the company appears to be very successful in managing its debt levels and has the ability to avoid short-term cash problems.
Although Cummins' consumer-related markers were affected by the continued economic weakness in the U.S., management stated that its global growth strategy was clearly effective in helping the company achieve its second-quarter performance. The company raised its sales guidance for fiscal 2008 to an increase of 15%, up from previous guidance of a 12% rise. However, the company's future results could be negatively impacted by rising commodity costs and general economic conditions.
Next up is
, a company that designs, develops, manufactures and supports technology, products and services for military use. Its 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 are as diverse as 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 growth in net income. Sales, earnings and operating margins increased in all four of the company's business groups in the second quarter of fiscal 2008. The combat systems group experienced increased sales in its armored vehicle and tank programs compared to the year-ago period and significant margin growth. New-aircraft volume in the aerospace group, increased shipbuilding activity in marine systems and continued strong demand for tactical communications and computing systems in the information systems and technology sector also contributed to the overall strong performance.
Revenue for the second quarter rose 10.8% year over year. This growth appears to have boosted the company's net income and EPS, which improved by 25% and 26%, respectively.
While the stock is trading 12.7% higher than it was a year ago, it should go without saying that even the best stocks can fall in an overall down market. However, we believe that the company's strengths outweigh the risks inherent in this industry.
And finally there's
, a worldwide oil and gas exploration and production company headquartered in El Dorado, Ark. Murphy explores for and produces crude oil, natural gas and natural gas liquids worldwide, with refining and marketing businesses in North Africa and the U.K.
In the U.S., Murphy produces oil and natural gas from six fields operated by the company and three operated by others. Murphy also conducts exploration and production operations in Canada, Malaysia, Ecuador and the U.K.
Murphy Oil has been rated a buy since March 2003. The company's strengths include its healthy growth in net income and revenue, solid stock performance and impressive record of EPS growth.
For the second quarter of fiscal 2008, the company reported year-over-year revenue growth of 81.3% and net income growth of 150.5%. The growth in net income was driven by higher crude oil prices and sales volume, while higher natural gas prices and an increase in the average daily production of natural gas and crude oil contributed to the improved revenue.
The company also reported a significant rise in EPS, to $3.27 from $1.32, continuing its pattern of positive EPS growth over the past two years. Additionally, Murphy Oil's stock price has surged 36.4% over the past year.
It is important to remember that any unexpected sharp downturn in oil and gas prices could negatively affect Murphy Oil's earnings. In addition, oil prices, which are highly volatile and cyclical in nature, are trading at record levels and could be vulnerable to weaker economic conditions. High prices may also create heightened demand for lower-cost alternatives and could thus hurt overall demand for oil and gas products.
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.