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.
is one of the nation's largest
. The company also manufactures and processes some of the foods that it sells in its supermarkets, as well as operates a variety of additional store formats that include convenience stores, multi-department stores, and mall jewelry stores. Our buy rating for
has been in place since March 2006. Although the company has generally had poor debt management, we feel that the rating is justified due to strengths such as the company's earnings-per-share growth, revenue growth and increase in net income.
For the second quarter of fiscal 2008, the company reported revenue growth of 11.9% year over year. This growth appears to have trickled down to the company's bottom line, helping to boost EPS by 10.5%. EPS rose from 38 cents in the second quarter of fiscal 2007 to 42 cents in the most recent quarter. Net income also grew during the second quarter, improving 3.5% from $2.76 billion to $2.77 billion.
Management credited its Customer 1st strategy as the basis for its ability to create value for its shareholders. Because of its year-to-date results and management's outlook for the remainder of the fiscal year, Kroger raised its identical sales guidance for fiscal 2008 to a range of 4.5% to 5.5%, excluding fuel. The company confirmed its earnings guidance of $1.85 to $1.90 per diluted share. The company had previously released earnings guidance of $1.83 to $1.90 per diluted share. While Kroger's share price has dropped recently, we do not see any strong reason stemming from the company's fundamentals that would cause a continuation of the past year's decline.
provides digital television entertainment in the U.S. and Latin America. We have rated the DirecTV Group a buy since May 2006. Our recommendation is based on such strengths as the company's continuing revenue growth, higher return on equity, and increase in net income.
DirecTV Group's revenue increased 15.1% year over year in the third quarter of fiscal 2008, led by solid subscriber growth and a 6.1% increase in average revenue per user. Net income rose 13.8% when compared to the same quarter last year, rising from $319.00 million to $363.00 million, while EPS improved 22.2% from 27 cents to 33 cents during the same time period. DirecTV Group's return on equity increased slightly over the past year and can be construed as a modest strength for the organization. The company's gross profit margin of 49.70% is considered to be strong. Along with this, the net profit margin of 7.3% is above the industry average. In addition, the company reported that its free cash flow quadrupled to $332 million.
The company announced that it continued to see strong consumer demand for its services and content despite the challenging economic climate. In addition, its third quarter results were consistent with the company's long-term goals at this time. Bear in mind that any decline in finding new subscribers and rise in operating costs may restrict DirecTV's future financial performance. However, we do not see any significant weaknesses that are likely to detract from the company's overall positive outlook at this time.
is one of the world's largest integrated energy companies. The company is engaged in every aspect of the oil and natural gas industry, with major operations in many important gas and oil producing regions worldwide. We have rated Chevron a buy since October 2003. This rating is based in part on the company's strong growth in revenue and earnings, as well as its largely solid financial position and good cash flow from operations.
For the third quarter of fiscal 2008, the company reported revenue growth of 42.3% year over year. This growth appears to have helped boost EPS, which rose significantly from $1.75 in the third quarter of fiscal 2007 to $3.85 in the most recent quarter. Chevron has demonstrated a pattern of positive EPS growth over the past two years, and we feel that this trend should continue. Net income improved by 112.3%, significantly exceeding that of both the S&P 500 and the oil, gas and consumable fuels industry. Earnings from Chevron's upstream operations were aided by higher crude oil prices when compared to last year, although the increase was tempered by the effect of hurricanes in the Gulf of Mexico. Earnings from downstream operations were boosted primarily by improved margins on the sale of refined products. Net operating cash flow also increased, rising 59.7% when compare with the same quarter last year. In addition, a very low debt-to-equity ratio implies that Chevron has successfully managed its debt levels.
Given the current
, Chevron announced that disciplined capital spending and tight control over costs would be extremely important to its financial success in the future. Although the company currently shows low profit margins and a weak quick ratio of 0.91 could cause future short-term cash flow problems, we feel that the strengths detailed above outweigh any potential weakness at this time.
is a publicly traded international oil and gas company. Our buy rating for Exxon Mobil has not changed since January 2004. The company's strong revenue and net income growth, along with a largely solid financial position, have contributed to this rating.
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Although results for the third quarter of fiscal 2008 were impacted by Hurricanes Gustav and Ike in the Gulf of Mexico, the company's revenues rose 34.7% year over year in the third quarter of fiscal 2008. Net income rose to a record $14.8 billion, an increase of 57.6% when compared with the same quarter last year. Exxon Mobil also reported significant EPS improvement, continuing a trend of positive EPS growth over the past two years with an increase from $1.70 per share in the third quarter of fiscal 2007 to $2.86 per share in the most recent quarter. One clear sign of strength for this company is the fact that its current return on equity exceeded its ROE from the same quarter one year prior, rising from 33.1% to 39.2%. In addition, the company has a very low debt to equity ratio of 0.08, implying that Exxon Mobil has successfully managed its debt levels. An adequate quick ratio of 1.09 illustrates the company's ability to avoid short-term cash problems.
Management stated that the company was able to deliver strong financial results despite world financial uncertainty in the third quarter. The company plans to continue with plans for disciplined capital investments in the future, staying consistent with previous guidance of about $25 billion for full year capital and exploration expenditures. Fourth quarter earnings are expected to be reduced due to damage repairs and lower volumes across all business lines as a result of Hurricane Gustav and Ike, although the majority of the company's operations are now back on-line or are in the final stages of start-up. It is important to remember that the company's performance largely depends on the movement of crude oil and natural gas prices, and any adverse pricing changes could therefore negatively impact future results.
is a global industrial gases company. Our buy rating for Praxair has been in place since December 2002. This rating is supported by the company's strong growth in revenue and EPS, notable ROE, good cash flow from operations and expanding profit margins.
The company reported record net income for the third quarter of fiscal 2008, earnings $355 million compared with $305 million one year prior. Earnings per share improved 18.1% year over year, rising from 94 cents to $1.11. These results were boosted by Praxair's revenues, which grew 20.2% in the third quarter. ROE can be considered a modest strength for Praxair, having improved slightly from 23.2% to 27.1% over the past year. Net operating cash flow also increased slightly to $603 million. In addition, we consider Praxair's gross profit margin of 39.2% to be strong. Although the profit margin is high, the company has managed to decrease it from the same period last year.
According to management, hurricanes in the Gulf of Mexico had some effect on the company's results, as did the economic environment in Europe and the United States. The company expects to see a contraction in manufacturing output in the U.S. and Europe and slowing growth in Asia due to the global financial crisis. The recent strengthening of the U.S. dollar is also expected to have an impact on earnings growth and consolidated sales. Management said that steps will be taken to align the company's cost structure as necessary, and stated that the company remains confident in its business strategy and ability to perform financially. Although the company has poor debt management based on the measures that we evaluated, we feel that the strengths detailed above should outweigh any potential weaknesses.
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.