Each weekday, TheStreet.com Ratings compiles a list of the top 10 stocks in five categories -- fast-growth, all-around value, large-cap, mid-cap and small-cap -- and publishes these lists on the Ratings section of our Web site.The rankings are based on our ratings, which assess risk-adjusted returns, as well as other criteria specific to the type of stock. We update the lists at the end of the business day on the basis of information available at the close of the previous trading session. The following day, we publish an article that takes a closer look at the ratings of the stocks on one of the lists. Today we look at all-around value stocks. These stocks are in the top 50% of all stocks rated by our proprietary quantitative model, which looks at more than 62 factors. Other selection criteria for this particular category include annual revenue of at least $500 million; lower-than-average valuation, such as a price-to-sales ratio of less than 2; and leverage that is less than 49% of total capital. First on the list is insurance and financial services company MetLife ( MET), which has merited a buy rating since December 2004. With a strong market position and growing international operations, the company is poised for strong financial performance. MetLife has bolstered its market position in the core insurance and annuity business with its acquisition of TIC. It now has one of the broadest distribution networks in the sector. Growth is expected through ongoing consolidation within the industry. The risks to the buy rating include the negative impact of any changes in interest rates, equity prices and any slowdown of the economy.
Hewlett-Packard ( HPQ) has been rated a buy since November 2004. This computer manufacturer's positives include robust top-line growth due to strong demand for its products, focused cost-cutting initiatives and improving profitability. Its strategy of acquiring businesses that complement its core operations is also commendable. However, TheStreet.com Ratings' optimism is tempered by the intense competition in the desktop, laptop and printer markets from Dell ( DELL) and Lexmark ( LXK). This pressures H-P to cut costs.
Raytheon ( RTN) has been rated a buy since October 2004. The company's strengths include steady growth in revenue, led by higher sales of defense electronics and business jets, and solid net income growth. Moreover, Raytheon, the fifth-largest Pentagon contractor, should benefit from higher proposed defense spending as President Bush's 2007 budget continues to favor spending on defense and homeland security. Negative variables include a global economic slowdown, terrorist attacks and increased fuel costs.
Loews ( LTR) has been rated a buy since November 2004. The company has diversified holdings, which include property casualty insurers CNA Financial ( CNA), cigarette maker Carolina Group ( CG), an offshore oil and gas driller, hotels and the Bulova watch company. We believe this wide-ranging business portfolio helps generate stable revenue growth and spreads the company's risks. Loews' strong balance sheet is another positive. This liquidity helps it meet future insurance liabilities and fund capital expenditures.
First Energy ( FE), which generates, distributes and sells electric energy to customers in Ohio, New Jersey and Pennsylvania, has been rated a buy since September 2004. The company is planning to increase its power generation capacity, which is expected to improve its financial performance going forward. TheStreet.com Ratings is also encouraged by the company's superior shareholders' return. Also, First Energy has cost advantage over its competitors, as it generates electricity using nuclear power and coal, while its competitors use oil and gas. However, the company is exposed to risks arising from the reliability of its power plants and transmission and distribution equipment, along with health and safety hazards in the case of its nuclear plants. Also, it could be significantly affected by changes in fuel prices or regulatory changes.
Hartford Financial ( HIG) has had a buy rating since August 2004. It has well-diversified operations and a favorable industry outlook. Six distinct businesses provide more earnings stability than that of its its industry peers. We are positive about the growth prospects for various protection and retirement products as baby boomers continue to age and life expectancies are longer. The investment environment for the conservative, liquid holdings of insurers also appears favorable.
Paccar ( PCAR) manufactures and distributes light-, medium- and heavy-duty trucks and related parts and provides financing and leasing services to customers and dealers. The company markets its trucks under the Peterbilt, Kenworth and DAF nameplates. Its strengths include record financial performance and impressive returns to shareholders. Paccar is expected to benefit from the encouraging industry trends, such as higher freight volumes, strong carrier profitability and equipment replacement cycles that are expected to drive industry sales in the future. Also, new engine emissions laws in Europe (effective Oct. 1, 2006) and the U.S. (effective Jan. 1, 2007) could result in higher vehicle sales. Paccar, with its expanding market share and constant product innovation, is well positioned to benefit from this expected increase in demand. However, automobile manufacturers' production volumes are dependent upon general economic conditions and the level of consumer spending. Any significant economic decline that results in a reduction in automotive production and sales could have a material adverse effect on company's business.
Chevron ( CVX) has been rated a buy since August 2004. One of the so-called super-major integrated oil companies, it has benefited from strong global demand that keeps oil prices high, as well as from increases in its own exploration activity. The company's robust cash flow facilitates share-buybacks and dividend-hikes.
Berkshire Hathaway ( BRKA) has been rated a buy since October 2004. The company's General Re unit is one of the largest reinsurers in the world -- it also own Geico, the fourth-largest U.S. auto insurer. Another unit, McLane, is a wholesale distribution and logistics business. Berkshire's strengths include robust revenue growth, a strong financial position with reasonable debt levels, solid stock-price performance, compelling growth in net income, and attractive valuation levels. These strengths outweigh Berkshire's weak operating cash flow.
Johnson Controls ( JCI) provides installed building control systems and technical and facility management services. It also designs and manufactures products and systems for passenger cars and light trucks, and provides advanced battery technology. It has been rated a buy since October 2004. The buy rating is supported by the company's recent acquisitions, as well as restructuring exercises at Ford ( F ), a major customer, are both likely to improve the top and bottom line at Johnson Controls going forward.