Top Five All-Around Value Stocks: April 15

Berkshire Hathaway, Nucor, Hess, Northrop Grumman and FPL Group are all on top.
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Updated from 07:09 a.m. EDT

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.

Berkshire Hathaway

(BRK.B) - Get Report

is a holding company whose insurance and reinsurance activities are conducted through more than 60 domestic and foreign-based insurance companies. Additionally, the company's subsidiaries write property and casualty insurance, sell building products and architectural coatings, supply connector products and engineering software, manufacture apparel and aircraft, provide high-technology training for aircraft pilots and crew, and operate utility and energy businesses.

Berkshire Hathaway has been rated a buy since April 2003. The company's strengths can be seen in its revenue growth and solid stock-price performance. Revenue rose 6.9% year over year for the fourth quarter of fiscal 2007. Overall, the company's 76 operating businesses performed well, although businesses linked to the housing market faced challenges.

Berkshire Hathaway moved to diversify its business during the fourth quarter by creating Berkshire Hathaway Assurance to guarantee municipal bonds. For fiscal 2007, the company earned $13.21 billion, which represents an increase of 20% compared with fiscal 2006. For the full year, revenue grew 20% to $118.24 billion.

Even the best stocks can fall in an overall down market, but in any other environment, this stock still has good upside potential, despite its rise during the past year.

Nucor

(NUE) - Get Report

manufactures steel products and is also one of the nation's largest recyclers of scrap metal. The company has facilities in 13 states and operates in two segments: steel mills and steel products. The steel mills segment produces both hot-rolled steel, which is manufactured from scrap, and cold-rolled steel made by further processing hot-rolled steel. The steel products segment produces items such as steel joists and joist girders, steel deck, cold-finished steel, steel fasteners, metal building systems and light-gauge steel framing.

Our buy rating for Nucor has not changed since March 2004. We are encouraged by the company's recent acquisitions and ability to continuously maintain higher-than-average shareholder returns. During fiscal 2007, Nucor completed major acquisitions to foster product diversification and maintain a competitive edge. Recently, the company acquired Nelson Steel, a producer of wire mesh and related products. In addition, Nucor's subsidiary, Harris Steel, completed acquisitions of three companies, thereby increasing its annual rebar fabrication capacity. Nucor also signed an agreement with Duferco Group to establish a 50-50 joint venture for the production of beams in Italy.

These acquisitions and ventures are expected to have a positive impact on earnings. Nucor's fourth-quarter return on equity (ROE), at 29%, was higher than the industry average. During the year, the company repurchased about 14.1 million shares at a cost of $754 million, and it still has 30 million shares to be repurchased under the current authorization. This should help support the ROE going forward.

According to the International Iron and Steel Institute, global demand for steel is expected to rise 6.8% in 2008, and this trend should benefit Nucor. Bear in mind, however, that any increases in scrap steel costs could negatively affect the company's margins and profitability, as could weak demand from the automotive and housing sectors.

Hess

(HES) - Get Report

explores for, produces, purchases, transports and sells crude oil and natural gas. The company conducts exploration and production activities in Algeria, Denmark, Norway, Malaysia, the U.K. and the U.S. Hess also manufactures, purchases, trades and markets refined petroleum and other energy products.

We have rated Hess a buy since August 2004. The company displayed excellent performance in the fourth quarter of 2007 on the back of rising production and pricing trends. Hess' revenue increased 32% year over year to $9.46 billion. Net income increased 42%, mainly because of lower operating costs and lower taxes. We believe Hess can leverage its strong fundamentals to continue to benefit from the current pricing trend.

While oil prices are currently trading at a record level, these prices are also highly volatile and cyclical in nature. Because Hess generates a significant portion of its income from the production of oil and gas, any unexpected sharp downturn in oil prices could negatively affect the company's earnings. Such a downturn could occur if high oil prices generate demand for low-cost alternatives or if the slowdown in the U.S. economy and weakness in the U.S. labor market put pressure on the demand for oil and gas products.

Northrop Grumman

(NOC) - Get Report

is a global defense and technology company. Serving government and commercial customers worldwide, it provides technologically advanced products, services and solutions in information and services, aerospace, electronics and shipbuilding.

The company serves as prime contractor, principal subcontractor, partner or preferred supplier when participating in high-priority defense and non-defense technology programs in the U.S. Northrop Grumman also conducts business with foreign governments and sells its commercial products and services both domestically and internationally.

Northrop Grumman has been rated buy since May 2004. The company recorded revenue growth of 10% year over year in the fourth quarter of 2007, driven primarily by robust growth in the information and services, electronics and ships segments. For the fourth quarter, net income increased to $454 million, or $1.32 a share, from $453 million, or $1.29 a share, a year ago. Net operating cash flow increased significantly in the same period. We feel that these strengths outweigh the company's low profit margins.

Earlier in 2007, Northrop Grumman acquired Essex Corp., a move that strengthened the company's capabilities in the rapidly growing intelligence business. The recent acquisitions of Scaled Composites and Xinetics are expected to complement the earlier acquisition and translate into meaningful revenue growth in fiscal 2008. The company also expects to benefit from the 2008 defense budget and is therefore optimistic about its future financial performance.

Management expects full-year 2008 revenue of $33 billion from organic growth alone, and forecasts EPS of $5.50 to $5.75 for the year. It is important to remember, however, that Northrop Grumman's business is highly cyclical and extremely dependent on government spending, which could affect results if reduced.

FPL Group

(FPL) - Get Report

owns and operates Florida Power & Light Co., supplying electric service to a population of more than 8 million throughout most of the east and lower west coasts of Florida. The company's generating plants use a variety of sources, enabling it to create an economical fuel mix.

FPL's buy rating is based primarily on its strong capacity addition plans, improved operating margin and an attractive dividend yield. To support growing energy demand, the company has been diversifying its fuel mix toward wind and nuclear in the wake of growing concerns about greenhouse emissions and escalating commodity prices. For the most recent quarter, revenue grew a little less than 2% year over year, but net income fell 16% because of a charge taken to account for losses in the notional value of its commodity trading contracts. Excluding this charge and a similar one from the fourth quarter of 2006, net income would have actually grown about 11%.

Management projects earnings in the range of $3.83 to $3.93 per share for fiscal 2008, up 10% to 13% over the 2007 result. It also issued longer-term guidance of $4.15 to $4.35 for fiscal 2009. However, FPL is exposed to risks arising from the reliability of its power plants, transmission and distribution equipments, and the health and safety hazards regarding nuclear plants. Regulatory changes, higher fuel prices and weather fluctuations could also affect the company.

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.

Know What You Own

: HES operates in the oil and gas industry, and some of the other stocks in its field include

BP

(BP) - Get Report

,

ConocoPhillips

(COP) - Get Report

and

Exxon Mobil

(XOM) - Get Report

. These stocks were recently trading at $65.52, -0.14%, $80.92, +1.40% and $90.45, +0.84%, respectively. For more on the value of knowing what you own, visit TheStreet.com's

Investing A-to-Z

section.

This article was written by a staff member of TheStreet.com Ratings.