Each business day, 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 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.
Top 5 All Around Value Stocks
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, an integrated oil and gas company, has been rated buy since December 2005. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance, EPS growth, increase in net income and attractive valuation level. Total's revenue growth outpaces the industry average, driving higher earnings. Total has demonstrated a pattern of positive EPS growth over the past year, a trend that should continue. Third-quarter net income climbed 62.8% to $4.89 billion compared with the same period last year, while revenue rose 26.1% over the same time frame. Even though it has already enjoyed a nice gain in the past year, Total's stock still shows upside potential. These strengths outweigh the company's low profit margins.
Public Service Enterprise Group
sells electricity and natural gas primarily in the northeastern and mid-Atlantic U.S. It has been rated a buy since November 2006. Third-quarter profit climbed 35.2% from a year ago to $506 million, or $1.97 a share.
Public Service Enterprise Group generates 67.6% of its operating income from its power segment, which grew 63.3% in the third quarter when compared with the same period last year. The growth was powered by higher prices realized, an increase in power generation and lower generation cost.
The company has also seen an increase in generating capacity from its nuclear power plants. The rating is not risk-free. Public Service Enterprise Group is exposed to risks arising from the reliability of power plants and transmission and distribution equipment, along with related safety hazards. In addition, the company could be negatively affected by regulatory changes.
, a technology products and services company, has been rated a buy since December 2005. The rating is based on the company's strong top- and bottom-line growth as well as its expanding margins. These positives are further supported by notable returns, reasonable leverage levels, and growth due to strategic acquisitions. Fiscal-year fourth-quarter net income climbed 27.5% from a year ago to $2.16 billion, or 81 cents a share driven by a strong performance across its business segments. Revenue increased 15% to $28.29 billion, primarily bolstered by strong sales across all of the company's business segments.
The company has agreed to acquire the Atos Origin Middle East group, or AOME. As one of the Middle East's leading systems integrators, AOME is expected to broaden the company's consulting and integration capacity in the region. Also, Hewlett-Packard has purchased digital inkjet printer company MacDermid ColorSpan. Risks remain.
Despite rising earnings and revenue, the company faces challenges from rising debt levels and stiff competition. Furthermore, exposure to emerging markets is forcing the company to lower its prices in order to defend market share. As a result, Hewlett-Packard's margins could deteriorate in the future.
L-3 Communications Holdings
, a military-equipment company, has been rated a buy since November 2005. Third-quarter net income rose 21% over a year ago to $199 million. Revenue increased by 11.1% to $3.45 billion during the same period, outpacing the industry average of 8.5%. L-3's earnings per share grew by 19.1% to $1.56, 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. Encouraged by a strong performance during the first nine months of 2007, a healthy backlog position and a favorable industry outlook, L-3 Communications raised fiscal-year 2007 guidance to $5.86 to $5.90 a share, up from an earlier range of $5.72 to $5.82 a share. The company also said it expects 2008 earnings to be within the range of Wall Street's expectations. Though the company's stock price has risen in the last 12 months, it should continue to move higher.
has been rated a buy since October 2005. The company's diversified business model and growth initiatives leave it well-positioned to gain from positive trends in the railroad industry. Third-quarter profit climbed 27% over a year ago to $532 million, or $2 a share. Union Pacific serves a broad range of customers, putting the company in a strong competitive position and making it less vulnerable to softness in the housing and auto industries.
Tightness in trucking capacity due to a driver shortage, increased highway congestion and higher fuel prices have resulted in higher demand for rail transport recently. Also, with double-stacked railcars and computer-guided systems, railroads are becoming more competitive than trucks.
On the down side, Union Pacific's business is cyclical in nature and sensitive to changes in economic conditions. Therefore, severe weather, currency volatility and higher-than-expected fuel prices could hurt Union Pacific's financial performance, and a recent change in Illinois tax law could increase the company's future income tax liability.
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 affect the stock price, nor does it include recent technology developments and competitive dynamics that may affect the company.
For those reasons, we believe that a rating alone cannot tell the whole story and that it should be part of an investor's overall research.
This article was written by a staff member of TheStreet.com Ratings.