Each business day, TheStreet.com Ratings compiles a list of the top five stocks in one of five categories -- fast-growth, all-around value, large-cap, mid-cap and small-cap -- 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. Lockheed Martin ( LMT) is a global security company headquartered in Bethesda, Md. We have rated Lockheed Martin a buy since May 2004. This rating is based on various strengths, such as the company's impressive record of EPS growth and increase in net income. For the second quarter of fiscal 2008, the company reported slight revenue growth of 3.6% year over year. The second quarter also brought EPS improvement of 18.1% when compared with the same quarter a year ago. Net income increased by 13.4% in the second quarter, rising from $778 million in the second quarter of fiscal 2007 to $882 million. In addition, net operating cash flow increased slightly by 6.19%.
Management reported that Lockheed Martin's second-quarter results were in line with its expectations for the quarter. We feel that the company's strengths outweigh the fact that it shows low profit margins, and we believe that the stock should have good upside potential under most economic conditions. Hewlett-Packard ( HPQ) provides products, technologies, solutions and services to individual consumers and businesses worldwide. Our buy rating for Hewlett-Packard has not changed since November 2004. This rating is based on the company's impressive record of EPS growth, increases in net income and revenue, attractive valuation levels and good cash flow from operations. Hewlett-Packard's total revenue for the third quarter of fiscal 2008 grew 10.5% year over year, which allowed EPS to improve by 21.2% when compared with a year ago. The company has, in fact, demonstrated a pattern of positive EPS growth over the past two years, and we feel that this trend should continue. Net income increased by 14.0%, rising from $1.8 billion in the third quarter of fiscal 2007 to $2.03 billion in the most recent quarter. Management attributed the company's third-quarter results to the acceleration of its enterprise growth and good execution across its portfolio. Hewlett-Packard's global position, broad product and services offerings and incremental cost-saving opportunities led management to state that it is confident in the company's ability to deliver expanded earnings in the future. For fiscal 2008, Hewlett-Packard expects revenue to range between $30.2 billion and $30.3 billion. Union Pacific ( UNP) provides rail transportation through its principal operating company, Union Pacific Railroad Company, which runs the largest railroad in North America. Union Pacific has been rated a buy since February 2005 due to its record of EPS growth, improvements in revenue and net income, consistent cash flow from operations and solid stock price performance.
During the second quarter of fiscal 2008, the company's earnings grew 19.1% year over year, boosted by higher shipments of coal, grain and fertilizer. Earnings were partially offset by rising fuel costs and the recent flooding in the Midwest. Net income rose to $531 million in the quarter from $446 million in the second quarter of fiscal 2007. Earnings per share also increased, rising 23.6% to $1.02 per share from 82 cents per share in the same quarter last year, while revenues improved 12.9%. Additionally, net operating cash flow increased 32.93% when compared with the second quarter last year. While the Midwest flooding earlier in the year caused a decrease in earnings for the second quarter, management was pleased with the resiliency that Union Pacific's network exhibited after the crisis, with a quick restoration of service allowing the company to finish the quarter strongly. The company anticipates challenges from high fuel prices and a soft economy going forward but expects that it will be able to take advantage of the opportunities presented by a diverse business mix. However, any failure to counter these issues could affect the company's future prospects. Petrobras-Petroleo Brasileiro ( PBR) is the national oil company of Brazil, engaging in the exploration, exploitation, and production of oil from reservoir wells, shale and other sources. Petrobras has been rated a buy September 2004. The company reported that its net income increased 29% year over year in the second quarter of fiscal 2008, fueled by higher international oil prices, higher oil and gas production, and the increase in gasoline and diesel prices in Brazil in May. In its release discussing the quarterly results, management reported that operating cash flow increased 27% over the same quarter last year. It also reported that domestic sales of oil products and national gas increased 8% when compared with the second quarter of fiscal 2007.
Although almost any stock can decline in a broad market decline, we feel that Petrobras should continue to move higher. The company continues to make investments in human resources and infrastructure in order to achieve its objectives, including investing in refineries and vertical integration of the production change to add value to its oil, thereby generating higher revenue from domestic and international sales. Additionally, the company made several new discoveries during the second quarter, such as light oil in shallow water in the southern portion of the Santos Basin. Bear in mind, however, that any unexpected sharp downturn in oil and gas prices could negatively affect Petrobras' future earnings. In addition, oil prices are highly volatile and cyclical in nature and could be vulnerable to weaker economic conditions. High prices may also create heightened demand for lower-cost alternatives, and could thus hurt overall demand for oil and gas products. Kraft Foods ( KFT) Kraft Foods manufactures and markets packaged food products, consisting principally of beverages, cheese, snacks, convenient meals and various packaged grocery products. Kraft has been rated a buy since August 2008. The company's strengths include its robust revenue growth, expanding profit margins, largely solid financial position with reasonable debt levels by most measures, growth in earnings per share and increased net income. Second-quarter 2008 results reflected a 21.4% year-over-year increase in revenue and a 27.1% increase in operating income. Excluding the impact of acquisitions, divestitures and currency movements, the company's revenue growth would have been up 6.9% on a year-over-year basis. On the bottom line, net income grew only 3.5%, as the company suffered the negative affects of a less-favorable tax rate and losses recorded in conjunction with asset divestitures.
Following the close of the quarter, Kaft completed the sale of its Post cereals business to Ralcorp ( RAH). In conjunction with the closing of the divestiture, management adjusted its guidance for 2008 organic revenue growth to 6%, up from an earlier forecast of a 5% increase over 2007. Excluding nonrecurring items, and taking into account the 4-cent negative impact from the Post divestiture, Kraft expects EPS of $1.88 for the year. It also announced guidance for 2009. Management currently expects to post GAAP EPS of at least $2 for next year. 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.