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.
provides products, technologies, solutions and services to individual consumers and businesses worldwide. Our buy rating for Hewlett-Packard has not changed since November 2004, based on the company's impressive record of earnings per share 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% 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%, 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 from $30.2 billion to $30.3 billion.
The DirecTV Group
provides digital television entertainment in the U.S. and Latin America. We have rated DirecTV a buy since May 2006, based on the company's continuing revenue growth, higher return on equity and improving gross profit margin and bottom line.
DirecTV's revenue increased 16.3% year over year in the second quarter of fiscal 2008, with U.S. revenue climbing 12.6% and Latin America revenue soaring 49.4%, aided by net subscriber additions in both segments. Net income rose from $448 million in the second quarter of fiscal 2007 to $455 million in the most recent quarter, while EPS improved from 36 cents to 40 cents during the same time period. Cash and cash equivalents almost doubled in the second quarter to $3.84 billion, while return on equity rose 85 basis points to 22.7%. The company's gross profit margin also improved during the quarter, climbing 136 basis points to 51.61%.
Although the company reported impressive revenue growth, it faces challenges fromdeteriorating operating margin, declining return on assets, and higher debt levels. Furthermore, any decline in finding new subscribers and rise in operating costs may restrict DTV's future financial performance.
ranks among premier transportation companies in the U.S. Its Norfolk Southern Railway subsidiary operates approximately 21,300 route miles in 22 states, the District of Columbia and Ontario. Norfolk Southern has been rated a buy since Oct. 8, 2003, supported by a number of strengths, including its revenue growth, impressive record of earnings per share growth, increase in net income, expanding profit margins and good cash flow from operations.
For the third quarter of fiscal 2008, the company reported a revenue increase of 23% year over year, which slightly outpaced the industry average of 21%. This appears to have helped boost EPS, which improved 41.2% when compared to the same quarter last year. In fact, Norfolk Southern has demonstrated a pattern of positive EPS growth over the past two years, and we feel that this trend should continue. Net income also increased, rising 34.7% compared with the prior year's quarter. Additionally, net operating cash flow increased significantly, rising 50.89%.
In its Oct. 21 earnings announcement, management stated that its diversified traffic base contributed to its positive third quarter results. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook.
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 impressive record of earnings per share growth, compelling growth in net income, revenue growth, largely solid financial position and notable return on equity.
On Oct. 23, the company reported record quarterly results for the third quarter of fiscal 2008, despite the impact of hurricanes and economic conditions. Record operating income of $1.2 billion represented a 21% increase year over year. Revenue rose by 15.6% compared with the same quarter last year. Although lower than the industry average of 21%, this growth appears to have helped boost EPS, which rose 38% over the prior year's quarter. A debt-to-equity ratio of 0.54 indicates successful management of debt levels, although the company does not appear able to easily pay its short-term obligations.
Although Union Pacific's stock has shown somewhat lackluster performance recently, we feel that the company's strengths outweigh any potential weakness at this time. Union Pacific's management expects the company to produce strong earnings growth in the fourth quarter, despite challenging economic conditions, as customers continue to see freight rail transportation as a valuable and attractive choice.
is an independent energy company that explores for, develops and produces natural gas, crude oil and natural gas liquids. The stock has been rated a buy since January 2003 due to such strengths as its robust revenue growth, impressive record of earnings per share growth, compelling growth in net income, expanding profit margins and good cash flow from operations.
Revenue grew 59.7% in the second quarter of fiscal 2008. This appears to have helped boost EPS, which continued a trend of positive EPS growth over the past two years by improving significantly from $1.89 in the second quarter of fiscal 2007 to $4.28 in the most recent quarter. Net income also increased significantly, rising 128.1% compared to the same quarter one year prior. In addition, net operating cash flow increased 39.16%.GLooking ahead, management remains positive about Apache's long-term outlook. The company expects to enter a period of accelerating production growth from 2009 to 2012, due to successful drilling programs and seven new development projects.
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.