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 our 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.
, which makes motion and control technologies and systems, has been rated a buy since October 2006. The company's revenue and net income for the fourth quarter of fiscal 2007 were both up over the year-earlier period, driven by higher sales volume from its aerospace and industrial international divisions. Parker-Hannifin also posted higher return on equity for the quarter. The company has been involved in a series of acquisitions, most recently of Rectus, a manufacturer of quick disconnect couplings and related products for pneumatic, hydraulic, medical and chemical processing applications.
There are potential risks, however. Parker-Hannifin operates in a highly competitive environment, and its growth is partly dependent on the continued development of new products and technologies. A significant portion of the company's revenue comes from customers outside the U.S.; this leaves it vulnerable to adverse foreign policy and currency risk.
L-3 Communications Holdings
, a military-equipment company, has been rated a buy since August 2005. It recently reported that its third-quarter earnings rose 21% over the same period last year. Higher defense spending worldwide, together with the company's recent acquisitions and a healthy backlog order book, encouraged management to raise guidance for fiscal 2007. L-3 Communications is expected to benefit from increased defense spending, as it is ranked among the top 10 biggest federal contractors. Also, higher security measures adopted by airports throughout the world will create new demand for L-3's baggage-screening systems and surveillance programs. However, the company's revenue could be affected by the loss of key contracts in any of its business segments. Also, L-3's dependence on government spending and its strategy of growth through acquisitions could negatively affect results.
Agricultural and commercial equipment manufacturer
Deere & Co.
has been rated a buy since August 2005. It recently completed the acquisition of Lesco, strengthening its foothold in the American market, and plans to expand its financial services arm into Canada. Deere also entered into a definitive agreement to acquire Ningbo Benye Tractor & Automotive Manufacture to expand its small tractor manufacturing business in China. This acquisition will enhance its product line and worldwide capacity to produce low-horsepower tractors. Deere is well-positioned to benefit from the surge in corn production -- driven by increased demand for ethanol -- which could compel farmers to buy more equipment.
Risks include any adverse weather conditions, which could hurt farmers' production and income and leave them with less money to spend on new equipment. In addition, Congress will begin negotiating a new farm bill this year, which could reduce farm subsidies and likewise leave farmers with less money to invest in capital. The current housing construction slump could put pressure on the company's construction and forestry businesses.
, which makes building heating and cooling systems, has been rated buy since August 2005, based on its impressive growth in revenue and net income. The company recently reported that its fiscal fourth-quarter profit increased 29.4% to $466 million or 77 cents a share, while revenue climbed 11% to $9.01 billion led by strong growth in the building efficiency and the power solutions segments. For 2007, net income increased 21.8% to $1.25 billion or $2.09 a share from $1.03 billion or $1.74 a share. Revenue rose 7.4% to $34.62 billion from $32.34 billion.
Looking ahead, Johnson Controls forecasts first-quarter EPS in the range of 35 cents to 37 cents, up 25% to 32%from a year ago. For full-year 2008, Johnson Controls anticipates sales to increase 10% to about $38 billion. Johnson has maintained a reasonably low leverage level, notable return on equity, and a positive outlook. However, the company's possible downside risks include a slowdown in the U.S. economy, mainly due to further deterioration of the housing market.
, which is involved in every aspect of crude oil and natural gas from exploration to distribution, has earned a buy rating since August 2005. The company has shown steady top-line growth, with revenue climbing 8.3% to $7.27 billion year over year in the second quarter, primarily because of increased production volumes and crude oil prices.
U.S natural gas consumption is expected to grow 2.9%, while demand for crude oil is expected to grow at an average rate of 1.5% annually, largely because of the rising number of automobiles. The U.S. imports more than 60% of its energy requirements from other countries, and this could result in an increase in the transportation of crude oil and natural gas. This trend should benefit Hess, as it is in the business of exploration, production and transportation of natural gas and crude oil. Any unexpected sharp downturn in oil and gas prices may hurt earnings, however. Exploration disruptions also could harm results.