Each business day, TheStreet.com Ratings compiles a list of the top five stocks in one of five categories -- fast-growth, all-around value, large-cap, mid-cap and small-cap -- 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.
is a global security company headquartered in Maryland. We have rated it a buy since May 2004 based on various strengths, such as the company's impressive record of EPS growth and increase in net income.
For the second quarter of fiscal 2008, the company reported slight revenue growth of 3.6% year over year. The second quarter also brought EPS improvement of 18.1% when compared with the same quarter a year ago. Net income increased by 13.4% in the second quarter, rising from $778.00 million in the second quarter of fiscal 2007 to $882.00 million. In addition, net operating cash flow increased slightly by 6.19%.
Management reported that Lockheed Martin's second-quarter results were in line with its expectations for the quarter. We feel that the company's strengths outweigh the fact that it shows low profit margins, and we believe that the stock should have good upside potential under most economic conditions.
ranks among premier transportation companies in the U.S. Its Norfolk Southern Railway subsidiary operates approximately 21,300 route miles. We have rated it a buy since Oct. 8, 2003. As of Oct. 10, 2008, the stock was trading at a price of $52.05, which is 31.1% below its 52-week high of $75.53 and 25.8% above its 52-week low of $41.36. The company's strengths can be seen in multiple areas, such as its growth in earnings per share, increase in net income, revenue growth, reasonable debt level and notable return on equity. We feel these strengths outweigh weak operating cash flow.
Norfolk Southern has improved earnings per share by 20.4% in the most recent quarter. Also, the company has demonstrated a pattern of positive earnings per share growth over the past two years, a trend we feel should continue. During the past fiscal year, Norfolk Southern increased its bottom line by earning $3.68 per share vs. $3.58 per share in the prior year. The market expects an improvement in earnings this year to $4.35 per share.
The company has grown its sales and net income during the latest quarter. Norfolk Southern's net income growth has outpaced the industry average, but revenue growth has not. Norfolk Southern has a weak liquidity position as reflected by a quick ratio of 0.72.
provides rail transportation through its principal operating company, Union Pacific Railroad Company, which runs the largest railroad in North America. Union Pacific has been rated a buy since February 2005 due to its record of earnings per share growth, improvements in revenue and net income, consistent cash flow from operations and solid stock price performance.
During the second quarter of fiscal 2008, the company's earnings grew 19.1% year over year, boosted by higher shipments of coal, grain and fertilizer. Earnings were partially offset by rising fuel costs and the recent flooding in the Midwest. Net income rose to $531 million in the quarter from $446 million in the second quarter of fiscal 2007. Earnings per share also increased, rising 23.6% to $1.02 per share from 82 cents per share in the same quarter last year, while revenues improved 12.9%. Additionally, net operating cash flow increased 32.93% when compared to the second quarter last year.
While the Midwest flooding earlier in the year caused a decrease in earnings for the second quarter, management was pleased with the resiliency that Union Pacific's network exhibited after the crisis, with a quick restoration of service allowing the company to finish the quarter strongly. The company anticipates challenges from high fuel prices and a soft economy going forward, but expects that it will be able to take advantage of the opportunities presented by a diverse business mix. However, any failure to counter these issues could affect the company's future prospects.
( KFT) manufactures and markets packaged food products, consisting principally of beverages, cheese, snacks, convenient meals and various packaged grocery products. Kraft has been rated a buy since August 2008. The company's strengths can be seen in multiple areas, such as its robust revenue growth, expanding profit margins, largely solid financial position with reasonable debt levels by most measures, growth in earnings per share and increased net income.
Second-quarter 2008 results reflected a 21.4% year-over-year increase in revenue and a 27.1% increase in operating income. Excluding the impact of acquisitions, divestitures and currency movements, the company's revenue growth would have been up 6.9% on a year-over-year basis. On the bottom line, net income grew only 3.5%, as the company suffered the negative affects of a less favorable tax rate, and losses recorded in conjunction with asset divestitures.
Following the close of the quarter, KFT completed the sale of its Post cereals business to
( RAH). In conjunction with the closing of the divestiture, management adjusted its guidance for 2008 organic revenue growth to 6%, up from an earlier forecast of a 5% increase over 2007. Excluding nonrecurring items, and taking into account the 4-cent negative impact from the Post divestiture, Kraft expects EPS of $1.88 for the year. It also announced guidance for 2009. Management currently expects to post GAAP EPS of at least $2 for next year.
provides products, technologies, solutions, and services to individual consumers and businesses worldwide. Our buy rating for Hewlett-Packard has not changed since November 2004. This rating is based on the company's impressive record of EPS growth, increases in net income and revenue, attractive valuation levels, and good cash flow from operations.
Hewlett-Packard's total revenue for the third quarter of fiscal 2008 grew 10.5% year over year, which allowed EPS to improve by 21.2% when compared with a year ago. The company has, in fact, demonstrated a pattern of positive EPS growth over the past two years, and we feel that this trend should continue. Net income increased by 14.0%, rising from $1.8 billion in the third quarter of fiscal 2007 to $2.03 billion in the most recent quarter.
Management attributed the company's third-quarter results to the acceleration of its enterprise growth and good execution across its portfolio. Hewlett-Packard's global position, broad product and services offerings and incremental cost saving opportunities led management to state that it is confident in the company's ability to deliver expanded earnings in the future. For fiscal 2008, Hewlett-Packard expects revenue to range between $30.2 billion and $30.3 billion.
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.