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.
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. The company 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 because of successful exploration and development activities. 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.
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 and operate utility and energy businesses.
Berkshire Hathaway has been rated a buy since April 2003. The company's strengths can be seen in multiple areas, such as revenue growth and solid stock price performance. Revenue rose 6.9% year over year in 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 to fiscal 2006 results. Total revenue for the full year also grew 20% to $118.24 billion.
Looking forward, 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 in the past year.
manufactures steel products and is also one of the nation's largest recyclers of scrap metal. The company has facilities in 13 states. Nucor operates in two segments: steel mills and steel products. The steel mills segment produces both hot-rolled steel, 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 an immediate positive impact on the company's earnings.
As for shareholder returns, Nucor's return on equity (ROE) stood at 29% at the end of the fourth quarter of 2007, which is higher than the industry average. During the fiscal 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 positive industry trend should benefit Nucor. Bear in mind, however, that any increases in scrap steel costs could negatively impact the company's margins and profitability, as could weak demand from the automotive and housing sectors.
provides products, technologies, solutions and services to individual consumers and businesses worldwide. The company's offerings include enterprise storage and servers, personal computing, multivendor services, and imaging and printing.
Hewlett-Packard's Personal Systems Group segment produces, among other products, commercial and consumer PCs based predominantly on the Windows operating system. These products use
Our buy rating for Hewlett-Packard has not changed since November 2004. This rating is based on the company's robust top-line and bottom-line growth, margin expansion and attractive returns. Total revenue for the first quarter of fiscal 2008 grew 14% year over year, aided by surging laptop sales and continued demand for printer ink.
Cost control measures and lower component costs helped the company to improve gross profit margin and operating margin 91 basis points and 140 basis points, respectively, from the year-earlier quarter. Gross profit margin was reported as 26%, while operating margin was 9.2%. Hewlett-Packard also reported improved returns, with return on assets increasing to 8.9% from 8% and the return on equity rising to 21% from 17%.
For fiscal 2008, Hewlett-Packard raised guidance based on anticipated cost reductions and gain in its market share. The company expects revenue to range between $27.7 billion and $27.9 billion for the second quarter of fiscal 2008. However, despite rising revenue and earnings, the company faces challenges from rising debt levels and stiff competition. Additionally, exposure to emerging markets is forcing the company to lower its prices in order to protect market share.
is an integrated energy company engaged primarily in electric power production and retail distribution operations. It owns and operates power plants with about 30,000 megawatts of electric generating capacity and is the second-largest nuclear generator in the U.S.
The company delivers electricity to 2.7 million utility customers in Arkansas, Louisiana, Mississippi and Texas, as well as owning and operating five nuclear power plants in the northeastern U.S. The electric power produced by the nuclear plants is sold primarily to wholesale customers. Entergy also supplies natural gas to approximately 179,000 customers in Baton Rouge and New Orleans, La.
Rated buy since November 2004, Entergy registered decent top-line growth in the fourth quarter of 2007. Revenue increased 10% year over year to $2.73 billion. This increase owed in part to higher revenue from the utility segment, due to warmer-than-usual weather and higher transmission revenue. The company's operating margins expanded 272 basis points to 13.96%, primarily due to an increase in gross margin and lower regulatory charges.
We are also encouraged by Entergy's plan to spin off its non-utility nuclear business. This plan was approved in November 2007 and involves converting the non-utility business into a new, independent, publicly traded company. The new company will be a joint venture; it is expected that Entergy and the yet-to-be-named spinoff company will each own 50% of the entity.
The transaction is expected to be completed by the third quarter of 2008, and it is thought that the company will grow through offerings of nuclear operating expertise, as well as ancillary nuclear services -- such as plant decommissioning and relicensing -- to third parties. Finally, the stock offers an attractive dividend yield at current prices.
Looking forward, Entergy reaffirmed its fiscal 2008 earnings-per-share guidance to be in the range of $6.50 to $6.90 when it reported its fourth quarter results. This reflects the company's objective of growing earnings by $1.00 per share per year. Bear in mind, however, that any unfavorable resolution on pending and future rate cases might adversely affect Entergy's business, while rising nuclear fuel prices could impact margins.
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.