TheStreet.com Ratings: Top 10 All-Around Value Stocks - TheStreet

TheStreet.com Ratings: Top 10 All-Around Value Stocks

MetLife, Volvo and Loews head up this week's list of top stocks.
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This list, updated daily, is based on data from the close of the previous trading session. 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 62 factors.

The stocks must also be followed by at least one financial analyst who posts estimates on the Institutional Brokers' Estimate System. They are listed in order of 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.

First on the list is insurance and financial services company

MetLife

(MET) - Get Report

, which has merited a buy rating since December 2004. With a strong market position and growing international operations, the company is positioned for continued strong financial performance.

MetLife has bolstered its market position in the core insurance and annuity business with its acquisition of TIC, giving it one of the broadest distribution networks in the sector. Ongoing consolidation within the industry will lead to sustained growth. The risks to the buy rating include the negative impact of any changes in interest rates, equity prices and any slowdown of the economy.

Volvo

(VOLV)

sold its automobile business to Ford in 1999, but its success in manufacturing trucks, buses, construction equipment and aircraft engine parts has earned a buy rating since January 2005. The stock has surged 50.76% during the 12 months ended Jan. 31, driven by EPS growth of 33.33% in the third quarter of 2006 compared to the same period the previous year. This continues the company's pattern of strong EPS growth during the past two years.

Also during the third quarter, net income grew 34.4% to $520.48 million when compared to that period a year ago, outperforming the S&P 500 and dwarfing the machinery industry average. The company's weak operating cash flow isn't enough to threaten the company's buy rating, given its other strengths.

Loews'

(LTR)

businesses include commercial property and casualty insurance, operating natural gas transmission pipeline systems, hotel administration and cigarette manufacturing, has merited a buy rating since November 2004. The company's diversified businesses create a strong balance sheet and steady revenue growth, allowing it the liquidity to react to future insurance risks and capital expenditure opportunities.

But with diversified holdings come diversified risks, and a buy rating is always threatened by litigation in the cigarette industry, catastrophic events on its insurance business or declining energy prices affecting its natural gas holdings.

Rated a buy since November 2004, strong demand for computer maker

Hewlett-Packard's

(HPQ) - Get Report

products has created robust top-line growth, thanks in part to savvy acquisitions of complementary businesses. Its focused restructuring initiatives hoped to improve margins, by reducing workforce and planning to consolidate its real estate portfolio, and can be considered a success at this point. Plus, the dark cloud that has hovered over the stock for months may be abating, with reports of plea negotiations in the boardroom spying scandal beginning to emerge.

Given the fierce competition in the laptop, desktop and printer markets from rivals like

Dell

(DELL) - Get Report

,

and Lexmark International

(LXK)

, H-P will continue to face constant pricing pressure and is likely to cut prices to preserve its formidable market share.

Railroad operator

Union Pacific

(UNP) - Get Report

has chugged along with a buy rating since February 2005. The company's revenue growth of 9.4% in the fourth quarter of 2006 compared to the same period the previous year outpaced the industry average, as did its net income growth of 63.9% to $485 million. EPS has increased steadily over the past two years, and during 2006, it reached $5.91 compared to $3.84 the year before.

Given its impressive numbers, it is little surprise that the company's stock price has reached a level making it relatively more expensive than its industry peers. But the high price level is justified by its pattern of strong performance.

Telmex-Telefonos de Mexico

(TMX)

, which owns and operates the largest telecommunications system in Mexico, has been rated a buy since December 2004. Its strengths include solid stock price performance, revenue growth, attractive valuation levels and EPS growth.

These factors outweigh the fact that the company has subpar growth in net income. Telmex's stock price rose about 14% in 2006, and it has additional upside potential from there.

Paccar

(PCAR) - Get Report

manufactures and distributes trucks and related parts and provides financing and leasing services to customers and dealers. The company markets its trucks under the Peterbilt, Kenworth and DAF nameplates. Its strengths include record financial performance and impressive returns to shareholders.

Paccar is expected to benefit from the encouraging industry trends, such as higher freight volumes, strong carrier profitability and equipment replacement cycles that are expected to drive industry sales in the future. Also, new engine emissions laws in Europe (effective Oct. 1, 2006) and the U.S. (effective Jan. 1, 2007) could result in higher vehicle sales. Paccar, with its expanding market share and constant product innovation, is well positioned to benefit from this expected increase in demand.

However, automobile manufacturers' production volumes are dependent upon general economic conditions and the level of consumer spending. Any significant economic decline that results in a reduction in automotive production and sales could have a materially adverse effect on company's business.

Rated a buy since October 2004,

Johnson Controls

(JCI) - Get Report

manufactures installed building control systems and technical and facility management services. It also designs and assembles products and systems for passenger cars and light trucks, as well as advanced battery technology.

The buy rating is supported by the company's recent acquisitions, moves to reduce dependency on the American auto industry and restructuring exercises that have boosted margins and increased cash flow. However, a significant economic slump would cause American automakers -- who contributed 32% to the company's 2006 sales -- to scale back production, and in turn, demand for Johnson's products.

Rio de Janeiro energy company

Petrobras-Petroleo Brasilier

(PBR.A)

has earned a buy rating since December 2004. The company's third-quarter revenue jumped 27.8% (to $19.98 billion) in 2006 compared to the same period the previous year. Net income growth of 22.9% the same quarter was attributed to improved earnings from upstream activities.

Petrobras also provides an attractive dividend yield at its current price level. With oil and natural gas prices soaring over the past two years, Petrobras' exploration and production (E&P) of crude oil and natural gas position it for continued strong growth. The company also plans to spend $49.30 billion on a capital expenditures from 2007 to 2011 to enhance and expand its E&P capability.

Potential risks to the buy rating include any sharp downturn in oil and gas prices or possible disruptions at production facilities in remote and politically sensitive regions of the globe.

Insurance and investment provider

Allstate

(ALL) - Get Report

has secured a buy rating since January 2005. The company had a return on equity of 22.86% in the fourth quarter of 2006, an impressive increase from the 8.74% it posted during the same period the previous year and a signal of strength within the company.

Also during the fourth quarter, net operating cash flow soared to $1.4 billion, a 315.5% increase compared to the same period a year ago. Debt-to-equity ratio of 0.21 is also below the industry average and shows that when it comes to managing debt levels, Allstate is in good hands. EPS growth of 203.87% in fiscal 2006 contributed to a stock price increase of 15.58% during the 12-month period. Barring a widespread market downturn, the stock still shows significant upside potential at its current price.