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Stock Screen: Stocks with Healthy Price Appreciation Potential – October 1, 2010
In this screen, we focus on stocks that are expected to perform well both in the next six to 12 months and for the pull to 2013-2015. To be included in our list issues had to be ranked 3 (Average), or better, for Timeliness (i.e. relative price performance in the year ahead), one of Value Line’s many proprietary rankings. Additionally, capital-appreciation potential over the next three to five years, as derived from our analysts’ earnings projections, had to be at least 130%. Next, the minimum annual total return potential (a combination of price appreciation and dividends) was pegged at 23%. Meanwhile, to eliminate stocks that have more than normal risk, we called for Safety ranks (another one of Value Line’s proprietary measures) of no worse than 3 (Average). That is, Safety ranks of 4 (Below Average) and 5 (Lowest) were excluded. Finally, any stock that had recently traded at a price of less than $10 a share was dropped from the list.
The resulting group is expected to perform at least in line, if not better than, the broad market in the near term. Better yet, our analysts feel that these stocks appear to be good long-term holdings. Investors should note that all data for this screen are from the Value Line Investment Survey dated October 1, 2010. To see the complete list of 16 stocks (limited to those ranked to outperform the broader market in the year ahead), investors can click here.
Intel (INTC – Free Analyst Report) is a leading manufacturer of integrated circuits. In addition to primarily supplying manufacturers of personal computers, the company serves a multitude of other global markets, including communications, industrial automation, military, and other electronic equipment. Intel’s product line consists of microprocessors, with the Pentium series being the most notable. It also manufactures microcontrollers and memory chips. The company also sells computer modules and boards, and network products.
Intel reported strong results for the June quarter. Revenues were $10.8 billion, compared with our estimate of $10.3 billion and the year-earlier tally of just over $8.0 billion. What's more, earnings per share came in at $0.51, versus our $0.43 expectation, and last year's $0.07-a-share loss. The Enterprise (corporate) sector was the primary factor behind the strong bottom-line showing, while a richer product mix also contributed. Meanwhile, the company’s agreement to buy security software maker McAfee (MFE) and the wireless division of German chip maker Infineon should aid its long-term growth.
However, Value Line urges investors to proceed with caution, and notes that although the global economy appears to be recovering, there are signs that the rebound might not be as strong as was initially expected. Indeed, the company recently lowered its expectations for the third quarter, due in part to weaker-than-expected demand for personal computers by consumers in mature markets. Consequently, the stock may be subject to near-term volatility. The long-term picture for Intel’s fundamentals and share price, though, remains favorable.
General Electric (GE - Free Analyst Report) is one of the largest and most diversified industrial companies in the world. Its largest divisions include Energy Infrastructure (24% of ’09 revenues); Technology Infrastructure (27%); NBC Universal (10%); Consumer & Industrial (6%); and Capital Finance (33%). On a geographic scale, more than half of General Electric’s 2009 revenues came from overseas.
The industrial conglomerate recorded mixed second-quarter results. Revenues fell 4% year over year, due to industrial dispositions, decreased equipment orders, and lower operating assets at its GE Capital unit. Still, earnings advanced 15% during the interim, to $0.30 a share, aided by management's restructuring measures. After hefty losses at GE Capital due to the collapse of the subprime mortgage markets, the segment's earnings are starting to rebound. In all, General Electric ought to generate a high-single-digit percentage bottom-line gain for all of 2010. And we are quite positive on the 3- to 5-year outlook for GE’s earnings. Consequently, we think the stock has substantial recovery potential out to 2013-2015.
Frontier Oil Corporation
Frontier Oil (FTO) is an independent energy company engaged in crude oil refining and the wholesale marketing of refined petroleum products. It operates refineries in Cheyenne, Wyoming and El Dorado, Kansas with a total crude oil capacity of roughly 187,000 barrels per day. The company focuses its marketing efforts in the Rocky Mountain and Plains States regions of the United States.
Share net for Frontier Oil jumped to $0.63 in the June interim, compared to a loss of $0.56 in the year-earlier period. (This ended a streak of four consecutive unprofitable quarters.) We expect the company to remain profitable during the second half of 2010, as business conditions have been improving. Although third-quarter production was constrained by a fire at the Cheyenne facility, it appears that earnings per share for 2010, as a whole, will be in positive territory, a marked improvement from the 2009 per share deficit. And, assuming additional expansion in operating margins, the bottom line stands to rebound at a vigorous pace next year, as well. Moreover, supported by prospects for greater oil products usage over the long term, the equity stands to bounce back considerably over the 2013-2015 time frame.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.