10 Worst-Rated Stocks May Get a Boost

BOSTON (TheStreet) -- Some investors have unleashed a backlash in response to sell-side analysts' recently released annual top picks and so-called best ideas for 2011.

Although interesting ideas are present in the lists of banks including Goldman Sachs, JPMorgan and Morgan Stanley, critics point out that the best-performing stocks are often found at the bottom of the barrel, receiving the worst ratings from analysts.

That rationale makes sense, on some level: When a stock is adored by researchers, there is goodwill and lofty expectations baked into its price, so it's more difficult to outperform. On the other hand, when a stock is universally panned, hurdles are low and even slight improvement can ignite a rally.

With this notion in mind, here are the 30th to 11th worst-rated S&P 500 stocks for 2011.

30. Cintas ( CTAS)
29. AK Steel ( AKS)
28. Assurant ( AIZ)
27. Consolidated Edison ( ED)
26. Campbell Soup ( CPB)
25. Paychex ( PAYX)
24. Total System Services ( TSS)
23. FirstEnergy ( FE)
22. AutoNation ( AN)
21. Netflix ( NFLX)
20. National Semiconductor ( NSM)
19. Advanced Micro Devices ( AMD)
18. KeyCorp ( KEY)
17. Vulcan Materials ( VMC)
16. Sunoco ( SUN)
15. Regions Financial ( RF)
14. Hudson City Bancorp ( HCBK)
13. Brown Forman ( BF)
12. Diamond Offshore ( DO)
11. Safeway ( SWY)

Now, here is a closer look at the 10 worst-rated S&P 500 stocks for 2011.

10. Federated Investors ( FII) is an investment-management company.

Its revenue has declined 3.9% annually, on average, since 2008. Its stock suffered annualized declines of 15% over that span. In the latest quarter, revenue fell 18% and earnings per share decreased 25%. But, Federated's stock offers a dividend yield of 3.6% and may benefit from continued outperformance of equity markets. It sells for a forward earnings multiple of 15 and a cash flow multiple of 11, 24% and 10% peer discounts. Macquarie offers a target of $30.

9. SuperValu ( SVU) owns super markets.

SuperValu is super-cheap, though poorly managed. The stock has plummeted 45% in the past 12 months. It trades at a forward earnings multiple of 5.1, a book value multiple of 1.3, a sales multiple of 0.1 and a cash flow multiple of 1.2, 67%, 54%, 91% and 87% discounts to food retail industry averages. Morningstar, which previously awarded SuperValu a five-star rating, has put the stock under review, given its third-quarter earnings miss. SuperValu missed consensus by 24%, sending shares down 12%.


8. Eli Lilly ( LLY) is a pharmaceutical company.

The company is scheduled to report fourth-quarter results Jan. 27. Third-quarter net income climbed 38% to $1.3 billion, or $1.18 a share, as revenue inched up 1.7%. Like other large-cap drug stocks (Lilly has a $40 billion market cap.), Lilly offers hefty dividends, currently paying 49 cents a quarter and yielding 5.6% a year. Furthermore, the dividend has grown 5.2% a year, on average, over the past five years. The stock is inexpensive, costing 7.9-times forward earnings and 5.8-times cash flow, 34% and 52% peer discounts.

7. Ameren ( AEE) is an electric and natural gas utility, with subsidiaries in Missouri and Illinois.

Ameren swung to a third-quarter GAAP loss of $167 million, or 70 cents a share, from a profit of $227 million, or $1.04, a year earlier. Revenue gained 24%. The operating margin rose from 28% to 30%. The stock pays a dividend yield of 5.4%, though the payout has fallen from a high of 64 cents in 2008. It sells for a forward earnings multiple of 12, a book value multiple of 0.9, a sales multiple of 0.9 and a cash flow multiple of 3.9, sizable peer discounts.


6. Duke Energy ( DUK) is an electric utility.

In the past three years, the company has boosted revenue 3.7%, annually, on average. Duke's third-quarter GAAP profit more than sextupled to $670 million, or 51 cents a share, as revenue increased 16%. The operating margin extended from 26% to 28%. Duke doesn't receive a single "buy" rating from analysts covering its stock. Yet, it remains a compelling income investment, yielding 5.5%, but with a payout ratio of more than 100%. The distribution has grown 4.1% a year, on average, since 2008.

5. Apartment Investment and Management ( AIV) is a real estate investment trust, or REIT, that owns, develops and redevelops apartment properties.

Apartment Investment is consistently unprofitable, having suffered losses in eight consecutive quarters. Its third-quarter loss narrowed 46% year-over-year, but the per share loss narrowed a more modest 22%. The REIT pays a quarterly distribution of 10 cents, equivalent to a 1.6% yield. Despite generally unfavorable outlook, Raymond James rates the stock a "strong buy", expecting an advance to $29.


4. Masco ( MAS) is a building-products company, selling and installing cabinetry, faucets, paints and decorative products in the U.S. and Europe.

Masco swung to a third-quarter loss of $5 million, or two cents a share, from a profit of $28 million, or 14 cents, a year earlier. Revenue declined 6.1%. Masco offers a 2.2% dividend yield, but the payout has fallen from 24 cents in 2009 to eight cents in the latest quarter. No analysts advise purchasing the stock, which is costly, at 31-times forward earnings. A cash flow multiple of 9.2 reflects a 42% discount to the industry average.

3. Cincinnati Financial ( CINF) is a property and casualty insurer based in Ohio.

Insurance stocks remain some of the cheapest investments in the U.S. market. Cincinnati Financial has rallied 20% in the past 12 months and pays a dividend yield of 5% with a safe payout ratio of 39%. Its dividend has grown 5.7% a year, on average, over a five-year span. The stock appears expensive, at a forward earnings multiple of 21, a 38% industry premium. Yet, it is cheap based on its book value multiple of 1 and cash flow multiple of 8.9, 71% and 39% discounts to insurance peer averages.


2. AIG ( AIG) nearly went bust during the financial crisis and is still 81%-owned by the U.S. government.

But the insurer's stock has more than doubled in the past year, benefitting opportunistic investors such as Bruce Berkowitz of Fairholme Capital. Of note: Fairholme added more than 11 million shares to its position in the fourth quarter, signaling optimism. AIG's third-quarter income from continuing operations was stable at $2.1 billion. Its adjusted loss of $1.47 a share beat analysts' consensus estimate by 58%, indicating a faster-than-expected business turnaround.

1. Sears Holdings ( SHLD) owns Sears and K-Mart as well as the Kenmore and Craftsman brands.

The company's stock has fallen 25% in the past 12 months. Of researchers following Sears, none rate its stock "buy", four rate it "hold" and four rank it "sell." The third-quarter loss widened 72% to $218 million as Sears remained unprofitable on an operating- and net-basis. The stock's forward earnings multiple of 100 and cash flow multiple of 22 represent premiums to retail averages. However, a book value multiple of 1 and a sales multiple of 0.2 reflect sizable discounts.

-- Written by Jake Lynch in Boston.

>To see these stocks in action, visit the 10 Worst-Rated Stocks portfolio on Stockpickr.

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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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