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. 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. TheStreet.com Ratings anticipates that these figures will experience more growth in the coming year. The company's stock price rose by 36.16% in the 12 months prior to Nov. 1, and 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 income from continuing operations increased to $469 million, or 78 cents a share.
Fourth-quarter revenue increased by 10.6% compared with the same period last year, driven by strong growth in the building efficiency and power solutions segments. Building efficiency rose by 15.4% to $3.61 billion in the quarter, mainly due to strong commercial building markets globally and higher demand for its products to improve energy efficiency and lower operating costs in nonresidential buildings.
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. Its fiscal 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. Its revenue increased by 9.2% over the same timeframe, driven by a mix of organic growth, strategic acquisitions and positive foreign currency exchange rates.
Parker-Hannifin's return on equity climbed 217 basis points to 18.68%, and cash and cash equivalents rose 6.9% to $187.92 million. However, the company suffers from a declining operating margin as well as a high debt level. In addition, a significant portion of its revenue comes from customers outside the U.S., leaving 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 Nov. 8, Telefonos' stock price increased by 22.33%. This stock still has good upside potential and it should continue to move higher. Although no company is perfect, TheStreet.com Ratings does not see any significant weaknesses that are likely to detract from the generally positive outlook.
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.