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.
L-3 Communications Holdings
, a military-equipment company, has been rated a buy since October 2005. It recently reported that its third-quarter net income rose 21% over a year ago. Revenue increased by 11.1% during the same period, outpacing the industry average of 8.5%.
L-3's earnings per share grew by 19.1% and the company's stable EPS growth over the past year indicates that it has sound management over its earnings and share float. Its net operating cash flow rose 24.41% to $324.10 million during the third quarter compared with the same period last year. L-3 Communications said it expects 2008 earnings to be within the range of Wall Street's expectations.
While the company's stock price rose by 36.16% in the 12 months prior to Nov. 1, it should continue to move higher.
, which makes building heating and cooling systems, has been rated a 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. Revenue rose 7.4% to $34.62 billion for the year.
Johnson Controls' performance largely depends on its ability to drive higher sales from its building efficiency and automotive experience segments. A sluggish housing sector and rising fuel prices hurting the automobile industry might restrict revenue growth in both segments.
, which makes motion and control technologies and systems, has been rated a buy since October 2006. First-quarter net income increased 9% from a year ago to $229.60 million, bolstered by strong sales growth in its industrial international and aerospace segments.
EPS on a diluted basis, which accounts for the effect of the 3-for-2 stock split completed Oct. 1, increased 13.7% to $1.33 a share. During the quarter, the board of directors authorized a $500 million accelerated share repurchase plan, resulting in the repurchase of about 6.5 million shares.
Parker-Hannifin operates in a highly competitive environment and its growth is partly dependent on constant development of new products and technologies. A large portion of its revenue comes from customers outside the U.S., making it susceptible to adverse foreign policy and currency risk.
, a technology products and services company, has been rated a buy since September 2005 based on growing revenue, strong cash flow and expanding margins. Third-quarter earnings climbed 29% from a year ago to $1.78 billion, or 66 cents a share. Revenue increased 16% to $25.38 billion. The gain in sales volume was partially offset by a reduction in average selling price, particularly in emerging markets.
Ongoing restructuring programs increased operating margins by 140 basis points. The company has made significant progress in improving its competitive position by diversifying its operations, lowering the cost structure and deploying capital in key business segments.
Stiff competition and exposure to emerging markets is forcing the company to lower its prices in order to defend its market share. As a result, Hewlett-Packard's margins could deteriorate in the future.
Rated a buy since September 2005,
Telmex-Telefonos de Mexico
provides fixed-line telephony services in Mexico, the U.S. and numerous countries in Latin America. It has been rated a buy since November 2005 and maintains a largely solid financial position with expanding profit margins, revenue growth and a pattern of EPS growth over the past two years that is likely to continue.
In the year prior to Sept. 27, Telefonos' stock price increased by 32.59%. This stock still has good upside potential and it should continue to move higher.
Competition in the industry has intensified over the last decade after the entry of cable companies in the telephone services sector. Declining service prices coupled with the introduction of new technologies to improve the overall service quality are enabling the wireless companies to rapidly add new customers. As a result, wireline companies are losing ground to wireless as well as cable companies.