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. Kroger ( KR) is one of the nation's largest grocery retailers. Our buy rating for Kroger has been in place since March 2006. Although the company has generally had poor debt management, we feel that the rating is justified due to strengths such as the company's earnings per share growth, revenue growth and increase in net income. For the second quarter of fiscal 2008, the company reported revenue growth of 11.9% year over year. This growth appears to have trickled down to the company's bottom line, helping to boost EPS by 10.5%. EPS rose from 38 cents in the second quarter of fiscal 2007 to 42 cents in the most recent quarter. Net income also grew during the second quarter, improving 3.5% from $2.76 billion to $2.77 billion.
Management credited its Customer 1st strategy as the basis for its ability to create value for its shareholders. Because of its year-to-date results and management's outlook for the remainder of the fiscal year, Kroger raised its identical sales guidance for fiscal 2008 to a range of 4.5% to 5.5%, excluding fuel. The company confirmed its earnings guidance of $1.85 to $1.90 per diluted share. The company had previously released earnings guidance of $1.83 to $1.90 per diluted share. While Kroger's share price has dropped recently, we do not see any strong reason stemming from the company's fundamentals that would cause a continuation of the past year's decline. Chevron ( CVX) is one of the world's largest integrated energy companies. The company is engaged in every aspect of the oil and natural gas industry, with major operations in many important gas and oil producing regions worldwide. We have rated Chevron a buy since October 2003. This rating is based in part on the company's strong growth in revenue and earnings, as well as its largely solid financial position and good cash flow from operations. For the third quarter of fiscal 2008, the company reported revenue growth of 42.3% year-over-year. This growth appears to have helped boost EPS, which rose significantly from $1.75 in the third quarter of fiscal 2007 to $3.85 in the most recent quarter. Chevron has demonstrated a pattern of positive EPS growth over the past two years, and we feel that this trend should continue. Net income improved by 112.3%, significantly exceeding that of both the S&P 500 and the oil, gas and consumable fuels industry. Earnings from Chevron's upstream operations were aided by higher crude oil prices when compared to last year, although the increase was tempered by the effect of hurricanes in the Gulf of Mexico. Earnings from downstream operations were boosted primarily by improved margins on the sale of refined products. Net operating cash flow also increased, rising 59.7% when compare to the same quarter last year. In addition, a very low debt-to-equity ratio of 59.7% implies that Chevron has successfully managed its debt levels.
Given the current economic climate, Chevron announced that disciplined capital spending and tight control over costs would be extremely important to its financial success in the future. Although the company currently shows low profit margins and a weak quick ratio of 0.91 could cause future short-term cash flow problems, we feel that the strengths detailed above outweigh any potential weakness at this time. ExxonMobil ( XOM) is a publicly traded international oil and gas company. Our buy rating for ExxonMobil has not changed since January 2004. The company's strong revenue and net income growth, along with a largely solid financial position, have contributed to this rating. Although results for the third quarter of fiscal 2008 were impacted by Hurricanes Gustav and Ike in the Gulf of Mexico, the company's revenues rose 34.7% year over year in the third quarter of fiscal 2008. Net income rose to a record $14.8 billion, an increase of 57.6% when compared with the same quarter last year. ExxonMobil also reported significant EPS improvement, continuing a trend of positive EPS growth over the past two years with an increase from $1.70 per share in the third quarter of fiscal 2007 to $2.86 per share in the most recent quarter. One clear sign of strength for this company is the fact that its current return on equity exceeded its ROE from the same quarter one year prior, rising from 33.1% to 39.2%. In addition, the company has a very low debt to equity ratio of 0.1, implying that ExxonMobil has successfully managed its debt levels. An adequate quick ratio of 1.1 illustrates the company's ability to avoid short-term cash problems.
Management stated that the company was able to deliver strong financial results despite world financial uncertainty in the third quarter. The company plans to continue with plans for disciplined capital investments in the future, staying consistent with previous guidance of about $25 billion for full year capital and exploration expenditures. Fourth quarter earnings are expected to be reduced due to damage repairs and lower volumes across all business lines as a result of Hurricane Gustav and Ike, although the majority of the company's operations are now back on-line or are in the final stages of start-up. It is important to remember that the company's performance largely depends on the movement of crude oil and natural gas prices, and any adverse pricing changes could therefore negatively impact future results. 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 impressive record of earnings per share growth, compelling growth in net income, revenue growth, largely solid financial position and notable return on equity. On Oct. 23, the company reported record quarterly results for the third quarter of fiscal 2008, despite the impact of hurricanes and economic conditions. Record operating income of $1.2 billion represented a 21.0% increase year over year. Revenues rose by 15.6% when compared to the same quarter last year. Although lower than the industry average of 21%, this growth appears to have helped boost EPS, which rose 38% over the prior year's quarter. A debt-to-equity ratio of 0.5 indicates successful management of debt levels, although the company does not appear able to easily pay its short-term obligations.
Although Union Pacific's stock has shown somewhat lackluster performance recently, we feel that the company's strengths outweigh any potential weakness at this time. Union Pacific's management expects the company to produce strong earnings growth in the fourth quarter, despite challenging economic conditions, as customers continue to see freight rail transportation as a valuable and attractive choice. Norfolk Southern ( NSC) ranks among premier transportation companies in the U.S. Norfolk Southern has been rated a buy since Oct. 8, 2003. Our rating is supported by a number of strengths, including its revenue growth, impressive record of earnings per share growth, increase in net income, expanding profit margins and good cash flow from operations. For the third quarter of fiscal 2008, the company reported a revenue increase of 23.0% year over year, which slightly outpaced the industry average of 21%. This appears to have helped boost EPS, which improved 41.2% when compared to the same quarter last year. In fact, Norfolk Southern has demonstrated a pattern of positive EPS growth over the past two years, and we feel that this trend should continue. Net income also increased, rising 34.7% when compared with the prior year's quarter. Additionally, net operating cash flow increased significantly, rising 50.9%. In its Oct. 21 earnings announcement, management stated that its diversified traffic base contributed to its positive third quarter results. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook. 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.