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.
Agricultural and commercial equipment manufacturer
Deere & Co.
has been rated a buy since August 2005. It recently completed the acquisition of Lesco, a leading supplier of lawn care, landscape, golf course and pest-control products; the deal doubled the number of wholesale distributor locations for its landscaping equipment. Deere also entered into a definitive agreement to acquire Ningbo Benye Tractor & Automotive Manufacture to expand its small tractor manufacturing business in China.
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.
L-3 Communications Holdings
, a military-equipment company, has been rated a buy since August 2005. It recently reported that its second-quarter earnings nearly tripled 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 impacted 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.
PC maker and information technology provider
has been rated a buy since July 2005. The company saw revenue rise in all of its divisions -- technology solutions, personal systems, imaging and printing, and financial services -- during the second quarter of 2007, compared with the same period last year. It has worked to improve its competitive position by diversifying its operation, lowering the cost structure with a restructuring program, and deploying capital to key business segments.
Still, competition and exposure to emerging markets is forcing the company to lower its prices to defend its market share. As a result, Hewlett-Packard's margins may contract going forward.
Brazilian oil company
has had a buy rating since August 2005. The company demonstrates revenue growth that has outpaced the industry average, and its stock price has increased by 27.11% in the 12 months prior to August 2007. Although almost any stock can fall in a broad market decline, Petrobras should continue to move higher. The company also has a largely solid financial position with reasonable debt levels by most measures. These strengths outweigh the company's subpar net income growth.
engages in the exploration, refining and transportation of crude oil and petroleum products worldwide and has been rated a buy since September 2005. The buy rating is supported by the company's expanding margins, increased EPS and low leverage. It recently agreed to buy Western Oil Sands for $5.50 billion in cash and stock, and announced the results of its Droshky discovery and two appraisal sidetrack wells in the Gulf of Mexico during the second quarter. The company also said that it was participating in a deepwater project offshore Angola.
There are potential risks to the buy rating. The company's performance depends in part on the movements of crude oil and natural gas prices. Any adverse movement in these prices could negatively impact revenue. Furthermore, failure to increase production volume from new discoveries and oil field upgrades are arenas of risk pertaining to the company's growth and profitability.