Our review of the sector includes three equipment and component suppliers and seven solar panel makers: Applied Materials Inc. (NASDAQ: AMAT), MEMC Electronic Materials Inc. (NYSE: WFR), GT Advanced Technologies Inc. (NASDAQ: GTAT), First Solar Inc. (NASDAQ: FSLR), SunPower Corp. (NASDAQ: SPWR), Suntech Power Holdings Co. Ltd. (NYSE: STP), Trina Solar Ltd. (NYSE: TSL), LDK Solar Co. Ltd. (NYSE: LDK), JA Solar Holdings Co. Ltd. (NASDAQ: JASO), and ReneSola Ltd. (NYSE: SOL).

Rather than looking for value plays in the industry perhaps we should instead look for potential survivors. At least five German solar PV suppliers have filed for bankruptcy and there have been reports that several of the second-tier players in China are failing as well. One German maker, SolarWorld AG, is leading an anti-dumping action against more than a hundred Chinese makers, and an initial ruling has imposed tariffs of around 35% on Chinese-made panels sold into the US. That won’t do anything but dampen demand further and cost US jobs in the solar panel installation business.

Applied Materials Inc. (NASDAQ: AMAT) traded at $10.47 and has a market value of around $13 billion. The consensus target price from Thomson Reuters is $13.64 and the 52-week range is $9.70-$13.94. Three months ago the target price was $14.47. Applied Materials has a dividend yield of 3.4%. The implied upside to the consensus target is 30%, and we note that the target is below the 52-week high.

MEMC Electronic Materials Inc. (NYSE: WFR) traded at $1.64 and has a market value of around $365 million. The consensus target price from Thomson Reuters is $5.24 and the 52-week range is $1.53-$10.61. Three months ago the target price was $6.14. MEMC does not pay a dividend. The implied upside to the consensus target is 220%, and we note that the target is far below the 52-week high.

GT Advanced Technologies Inc. (NASDAQ: GTAT) traded at $4.02 and has a market value of around $485 million. The consensus target price from Thomson Reuters is $8.82 and the 52-week range is $4.00-$17.50. Three months ago the target price was $12.70. GT does not pay a dividend. The implied upside to the consensus target is 120%, and we note again that the target is far below the 52-week high.

First Solar Inc. (NASDAQ: FSLR) traded at $14.42 and has a market value of around $1.2 billion. The consensus target price from Thomson Reuters is $25.29 and the 52-week range is $13.21-$142.22. Three months ago the target price was $43.55. First Solar does not pay a dividend. The implied upside to the consensus target is 75%, and we note again that the target is far below the 52-week high.

SunPower Corp. (NASDAQ: SPWR) traded at $5.23 and has a market value of around $615 million. The consensus target price from Thomson Reuters is $8.79 and the 52-week range is $4.94-$23.36. Three months ago the target price was $9.70. SunPower does not pay a dividend. The implied upside to the consensus target is 68%, and we note again that the target is far below the 52-week high.

Suntech Power Holdings Co. Ltd. (NYSE: STP) traded at $1.83 and has a market value of around $331 million. The consensus target price from Thomson Reuters is $2.39 and the 52-week range is $1.70-$8.50. Three months ago the target price was $2.57. Suntech does not pay a dividend. The implied upside to the consensus target is 31%, and we note again that the target is far below the 52-week high.

Trina Solar Ltd. (NYSE: TSL) traded at $5.83 and has a market value of around $408 million. The consensus target price from Thomson Reuters is $7.87 and the 52-week range is $5.01-$23.64. Three months ago the target price was $9.15. Trina Solar does not pay a dividend. The implied upside to the consensus target is 35%, and we note again that the target is far below the 52-week high.

LDK Solar Co. Ltd. (NYSE: LDK) traded at $2.53 and has a market value of around $347 million. The consensus target price from Thomson Reuters is $2.27 and the 52-week range is $2.54-$7.75. Three months ago the target price was $3.25. LDK does not pay a dividend. The current price is above the consensus target, but still below the target price in February and well below the 52-week high.

JA Solar Holdings Co. Ltd. (NASDAQ: JASO) traded at $0.95 and has a market value of around $192 million. The consensus target price from Thomson Reuters is $1.85 and the 52-week range is $0.89-$6.15. Three months ago the target price was $2.25. JA Solar does not pay a dividend. The implied upside to the consensus target is 95%, and we note again that the target is far below the 52-week high.

ReneSola Ltd. (NYSE: SOL) traded at $1.35 and has a market value of around $116 million. The consensus target price from Thomson Reuters is $1.98 and the 52-week range is $1.32-$7.65. Three months ago the target price is not available. ReneSola does not pay a dividend. The implied upside to the consensus target is 47%, and we note again that the target is far below the 52-week high.

The only dividend-paying company out of this group is Applied Materials — that fact alone makes it a better bet than any of the rest. The company thinks it will grow sales 16% in 2012, but that will probably include another decline in sales of solar cell-making equipment. Revenue from Applied’s solar business fell -62% in 2011, and there is simply no prospect of a turnaround of any size in the solar business this year. Applied’s potential upside of 30% is not unrealistic from a mathematical point of view, but from a practical point of view that upside is probably too high by at least half.

Of the panel makers, the best any can hope for is that the situation doesn’t get any worse. We noted yesterday that Maxim Group raised its rating on Trina Solar from ‘sell’ to ‘hold’. That’s known as “damning with faint praise.”

And based on the quarterly earnings reports we’ve seen so far, ReneSola offered the most hope, saying that it plans to reach a cost of $0.70/watt in the second quarter, which might bring its margins back out of negative territory. The operative word is ‘might’.

The apparent value in the solar sector represents a gamble more than anything else. The industry is too different now from what it was two years ago to make any sort of historical argument for one company over another. But one thing is certain — solar is no longer a growth sector, it is a contracting sector. What looks like a value investment today is really a survival bet.

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Paul Ausick

Simon goes on to say:

What we were really trying to do was [prove] the top line, and what we’re finding is that inside of 12 months they are actually delivering a positive bottom line as well. … Now, the next phase for us is about how big could this be. And I think that’s important in that we’re moving into a phase where we are going to work on the construction costs and we’re going to work on the distribution costs. Again, already profitable, but we want to get them up to what would be the fleet average, or hopefully beyond that. And we’re also going to work on density, like how many can you build in a market and to what point do you have to get you for this to matter on our large base.

So you will see us in the back half of this year go to a market and build them out very densely so that we can understand their interaction with the rest of the market, including us.

In answer to a question, Simon emphasized that the top line is driving the stores profitability. The company’s massive supercenters maintain 70% of Walmart’s inventory. These small stores don’t have the space for that, so store employees have to pick apart deliveries just as they would if they worked in a mom-and-pop store. That costs money, but the higher revenues Walmart is getting are the result of the “convenience” aspect of the stores, and could make the concept profitable provided the company comes up with a reasonably low-cost distribution scheme.

Walmart’s shares closed at $65.07 yesterday, slightly down from a new 52-week high of $65.18. The low end of the range is $48.31.

Shares are less than $5 from an all-time high and less than $0.25 from analysts’ consensus target price. Walmart may not be a value play in the retail sector, as we noted in our review of retail stocks yesterday, but the share price has jumped 9% since the beginning of the year and nearly 18% in the past 12 months. That’s not bad for a behemoth like Walmart.

An edited transcript of Simon’s presentation is available here and the slides are here.

Paul Ausick

With warnings having started from key leaders in the realm of chip stocks, the question is whether or not you can trust the analysts and the consensus upside.  24/7 Wall St. has gone in and evaluated the leaders in each aspect of the semiconductor sector to see where there is value and where the risks currently lie.  We evaluated the following chip companies: Intel Corporation (NASDAQ: INTC); QUALCOMM Incorporated (NASDAQ: QCOM); Texas Instruments Inc. (NASDAQ: TXN); Broadcom Corp. (NASDAQ: BRCM); NVIDIA Corporation (NASDAQ: NVDA); Advanced Micro Devices, Inc. (NYSE: AMD); Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE: TSM); Freescale Semiconductor Holdings (NYSE: FSL); SanDisk Corporation (NASDAQ: SNDK); Applied Materials Inc. (NASDAQ: AMAT); Lam Research Corporation (NASDAQ: LRCX); and Altera Corporation (NASDAQ: ALTR).

In a further effort to show just how much these have sold off, we have shown the moves in the following key semiconductor ETFs: Market Vectors Semiconductor ETF (AMEX: SMH); SPDR S&P Semiconductor (AMEX: XSD); and the ProShares Ultra Semiconductors (AMEX: USD).  We have also run the same screens in retail, gold and silver miners, conglomerates, industrial giants, and major oil companies with links to those at the end of this article. Here is the screening of value and upside in the chip giants:

Intel Corporation (NASDAQ: INTC) traded at $26.60 with a market value of $129 billion.  The consensus target price for the king of PC processors from Thomson Reuters is $29.75 and the 52-week trading range is $19.16 to $29.27.  This DJIA component’s most recent yield was listed as 3.2%. Intel’s implied upside to the consensus target is 16% and it is worth noting that the consensus target is just above the 52-week high.

QUALCOMM Incorporated (NASDAQ: QCOM) traded at $57.78 with a market value of $99 billion.  The consensus target price from Thomson Reuters is $71.92 and the 52-week trading range is $45.98 to $68.87.  The CDMA giant yields about 1.7% after dividend hikes. The implied upside to the consensus target is just under 25% but we would note that the consensus target is still over $3.00 above the 52-week high.

Texas Instruments Inc. (NASDAQ: TXN) traded at $29.15 with a market value of $33.4 billion.  The consensus target price from Thomson Reuters is $35.80 and the 52-week trading range is $24.34 to $35.30.  The yield here is about 2.3%. TI’s implied upside to the consensus target is just under 23% and that target is still just above its 52-week high.

Broadcom Corp. (NASDAQ: BRCM) traded at $31.85 with a market value of $17.5 billion.  The consensus target price from Thomson Reuters is $43.21 and the 52-week trading range is $27.59 to $39.66.  Broadcom has a paltry yield of only about 1.2%, but its implied upside to the consensus target is about 35%.  Be advised that this consensus target is almost $4.00 above the 52-week high.

NVIDIA Corporation (NASDAQ: NVDA) trades at $12.25 and its market cap is just over $7.5 billion. This graphics processor leader has a consensus target price of $16.64 and the 52-week trading range is $11.47 to $20.05.  NVIDIA pays no dividend and that is something which it should consider changing since it has about $3 billion in cash and liquidity. Its implied upside to the consensus target is about 35% and that consensus target price is well under its 52-week high.

Advanced Micro Devices, Inc. (NYSE: AMD) trades at $6.06 and its market cap is only $4.25 billion despite it being so actively traded. The consensus target price for this distant number-2 in PC processors is $8.55 and the 52-week trading range is $4.31 to $8.71.  AMD has no dividend due to very spotty earnings. Its implied upside to the consensus target is more than 41% if you trust the analysts here and its target price is just under its 52-week high.

Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE: TSM) currently trades at $14.15 for its ADR and Yahoo! Finance shows its market value being about $73 billion.  The consensus target price from Thomson Reuters is $16.70 and the 52-week trading range is $10.75 to $16.15.  The yield is listed as roughly 2.9%. TSM’s implied upside to the consensus target is 18% and the consensus target is about 4% above the 52-week high.

Freescale Semiconductor Holdings (NYSE: FSL) has been battered since its IPO and shares now trade at $9.75 with an implied market value of $2.4 billion.  This private equity backed chip outfit’s consensus target price from Thomson Reuters is all the way up at $17.92 and the 52-week (less than one-year actually) trading range is $9.43 to $20.97.  Freescale has NO DIVIDEND, which makes it stand out against the peer group now.  Still, if you trust the analysts here the implied upside to the consensus target is a whopping 83%!  Trust is hard to come by here, particularly for a company where backers will sell shares along the way into strength.

SanDisk Corporation (NASDAQ: SNDK) trades around $32.50 and its market value is about $7.9 billion.  The king of flash memory’s consensus target price from Thomson Reuters is $44.46 and the 52-week trading range is $31.34 to $53.46.  SanDisk has no current dividend, something which may need to change down the road considering that this is not anywhere close to a new company.  Its implied upside to the consensus target is 37% but the company has had two warnings.

Applied Materials Inc. (NASDAQ: AMAT) currently trades at $10.55 and its market value is $13.6 billion.  The consensus target price from Thomson Reuters is $13.65 and the 52-week trading range is $9.70 to $13.94.  Applied now yields about 3.4% and its implied upside to the consensus target is about 29%.

Lam Research Corporation (NASDAQ: LRCX) is worth more than $4.5 billion today but it is acquiring Novellus Systems, Inc. (NASDAQ: NVLS) for about $3 billion in stock, so it will soon be larger.  Its shares trade at $38.00, its consensus target price is $48.53 and the 52-week trading range is $34.81 to $48.88.  Lam Research pays NO DIVIDEND now and its implied upside is almost 28%.

Altera Corporation (NASDAQ: ALTR) currently trades at $33.90 and its market value is $10.9 billion.  The consensus target price from Thomson Reuters is $41.00 and the 52-week trading range is $30.39 to $48.91.  Altera has a dink yield of only about 1% and we expect a dividend hike in the coming weeks or months. Its implied upside to the consensus target is about 21% and this one is well off highs and the target is almost $8.00 under its 52-week high.

Market Vectors Semiconductor ETF (AMEX: SMH) has undergone a total transformation since it is no longer the Semiconductor HOLDRs.  At $31.25 its range since the change is listed as $28.86 to $36.17.  This ETF is said to have assets of almost $400 million, but that changes based upon inflows and outflows on top of the change in the price.

SPDR S&P Semiconductor (AMEX: XSD) ETS is now one of the longest ETF in chips since the HOLDRS changed.  At $43.50 now, its 52-week range is $40.09 to $59.85 and it still has only about $44 million in assets.  This one peaked in January and the mix of components has made it more volatile than many leaders.  This ETF would now have to rally by more than 37% to hit its 52-week high again.

ProShares Ultra Semiconductors (AMEX: USD) uses leverage of 2-times for its semiconductor trading, so this is one where it will feel just like getting your fingernails ripped out when your timing is wrong. At $33.50, this leveraged ETF has a 52-week range of $26.18 to $46.46. It would have to rally about 39% to hit its 52-week high again.

As you can see, the semiconductor and chip leaders have now pulled back substantially from their highs seen throughout 2012.  The issue to consider is that Dell Inc. (NASDAQ: DELL) and Hewlett-Packard Co. (NYSE: HPQ) have confirmed that PC sales are slowing.  Some of this is due to Apple Inc. (NASDAQ: AAPL) and some of it is due to weakness in Europe, weak PC spending in the Americas, and a slowing of growth in the BRIC nations.  How the Microsoft Corporation (NASDAQ: MSFT) launch of Windows 8 will impact the PC refresh cycle ahead is now another wild card since PC sales guidance is looking softer than anticipated from just a couple of weeks ago.

We also want to warn investors to not just blindly trust the analysts in semiconductor price targets here.  Summer can be a brutal time for chip stocks.  The drop in the ProShares Ultra Semiconductors (AMEX: USD) during the summer of 2011 was about 40% and the drop from the 52-week high in 2011 to that end of summer trough was almost 50%.

The drop in the SPDR S&P Semiconductor ETF (AMEX: XSD) during the summer of 2011 was about 25%, but the drop from the peak in early 2011 here to the trough of late-summer was about 31%.

Summer is a very tough time to invest in chip stocks, and the question now is just how much the slowdown is going to continue taking out of chip stocks.  We would certainly avoid trying to play the game of trying to catch falling knives here, but these are all worth keeping an eye on for those inflection points where the valuations start to adequately discount the warning signs.

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JON C. OGG

When the stores reported first quarter earnings, the preponderance of guidance pointed to slower sales in the second quarter likely based on sales pulled forward into the first quarter due to warm weather. But it could be the case that falling gasoline prices are giving sales a lift in May that could continue through June. According to the latest report from Retail Metrics, retailers are on track to post a comparable store sales gain of 3.6% in May, excluding the negative effect of lost sales at Walgreen Co. (NYSE: WAG) due to its being dropped by pharmacy benefits management firm Express Scripts Inc. (NASDAQ: ESRX).

We looked at a dozen retailers with an eye toward discerning value opportunities for investors: Costco Wholesale Corp. (NASDAQ: COST), Wal-Mart Stores Inc. (NYSE: WMT), Target Corp. (NYSE: TGT), Macy’s Inc. (NYSE: M), Kohl’s Corp. (NYSE: KSS), J.C. Penney Company Inc. (NYSE: JCP), Gap Inc. (NYSE: GPS), Limited Brands Inc. (NYSE: LTD), American Eagle Outfitters Inc. (NYSE: AEO), Abercrombie & Fitch Inc. (NYSE: ANF), The TJX Companies Inc. (NYSE: TJX), and Dollar General Corp. (NYSE: DG).

Costco Wholesale Corp. (NASDAQ: COST) traded at $84.14 and has a market value of around $37 billion. The consensus target price from Thomson Reuters is $86.83 and the 52-week range is $70.22-$92.10. Costco has a dividend yield of 1.3%. The implied upside to the consensus target is just 3%, and we would note that the target is below the 52-week high.

Wal-Mart Stores Inc. (NYSE: WMT) traded at $64.65 and has a market value of around $220 billion. The consensus target price from Thomson Reuters is $65.28 and the 52-week range is $48.31-$64.88 (new high set today). Walmart has a dividend yield of 2.5%. The implied upside to the consensus target is barely 1%, but we would note that the target is still above the 52-week high.

Target Corp. (NYSE: TGT) traded at $56.84 and has a market value of around $38 billion. The consensus target price from Thomson Reuters is $63.65 and the 52-week range is $45.28-$58.95. Target has a dividend yield of 2.1%. The implied upside to the consensus target is 12%, and we note again that the target is above the 52-week high.

We’ve looked at five conglomerates that offer some upside: General Electric Co. (NYSE: GE), 3M Co. (NYSE: MMM), United Technologies Corp. (NYSE: UTX), Honeywell International Inc. (NYSE: HON), and Tyco International Ltd. (NYSE: TYC).

With one exception, implied upside for these companies wanders in the mid- to high-teens. The exception is United Technologies. The second-lowest of the five is Tyco, the de-conglomerated conglomerate.

General Electric Co. (NYSE: GE) traded at $19.06 and has a market value of $203 billion. The consensus target price from Thomson Reuters is $22.57 and the 52-week range is $14.02 to $21.00. GE has a dividend yield of 3.6%. The implied upside to the consensus target is 18%, but we would note that the target is above the 52-week high.

3M Co. (NYSE: MMM) traded at $83.38 and has a market value of around $58 billion. The consensus target price from Thomson Reuters is $95.47 and the 52-week range is $68.63 to $98.19. 3M has a dividend yield of 2.8%. The implied upside to the consensus target is 14.5%, but we would note that the target is also above the 52-week high.

United Technologies Corp. (NYSE: UTX) traded at $73.37 and has a market value of around $67 billion. The consensus target price from Thomson Reuters is $94.60 and the 52-week range is $66.87 to $91.83. UTX has a dividend yield of 2.6%. The implied upside to the consensus target is 29%, but we would note that the target is also above the 52-week high.

Honeywell International Inc. (NYSE: HON) traded at $56.72 and has a market value of around $44 billion. The consensus target price from Thomson Reuters is $67.56 and the 52-week range is $41.22 to $62.00. Honeywell has a dividend yield of 2.6%. The implied upside to the consensus target is 19%, but we would note that the target is also above the 52-week high.

Tyco International Ltd. (NYSE: TYC) traded at $53.59 and has a market value of around $24 billion. The consensus target price from Thomson Reuters is $62.20 and the 52-week range is $37.39 to $57.75. Tyco has a dividend yield of 1.9%. The implied upside to the consensus target is 16%, but we would note that the target is also above the 52-week high.

Based on these numbers, United Technologies offers the most potential upside, but the thing to keep in mind that its acquisition of Goodrich Corp. (NYSE: GR), which is set to close by mid-year, will leave the company with a large debt and not the brightest prospects for profit growth for another year or so.

Tyco, with the lowest implied gain at 16%, is splitting itself into three pieces. The company expects to complete the spin-off of its home security division into The ADT Corp. later this year as well as the spin-off of the fire and security division and the spin-off and merger of the flow control business with Pentair Inc. (NYSE: PNR). All these moves pushed the stock to a year-to-date gain of 20% in late March, which has since been ratcheted back to 15%. And over the past 12 months, only Tyco has shown an increase in share value, up more than 11%.

GE, with its 3.6% dividend yield, and implied upside of 18% is a safe choice here. 3M, with the lowest upside potential, and Honeywell are about equal otherwise. United Technologies has the most potential upside, but it may take a while to materialize. Overall, Tyco, which has withstood the fall in prices better than any of the others, may offer the best reward sooner than any of the others.

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Paul Ausick

24/7 Wall St. has gone through the industrial products, chemicals, and heavy equipment makers to see which outfits offer investors the least risk and most reward.  Consensus targets are from Thomson Reuters and we have evaluated the following: Air Products & Chemicals Inc. (NYSE: APD); The Boeing Company (NYSE: BA); Caterpillar Inc. (NYSE: CAT); Deere & Company (NYSE: DE); The Dow Chemical Company (NYSE: DOW); E. I. du Pont de Nemours and Company (NYSE: DD); Danaher Corp. (NYSE: DHR); and Illinois Tool Works Inc. (NYSE: ITW).

Air Products & Chemicals Inc. (NYSE: APD) traded at $79.50 with a market value of $16.8 billion.  The consensus target price from Thomson Reuters is $98.75 and the 52-week trading range is $72.26 to $98.00.  Air Products’ most recent yield was listed as 3.2%. The implied upside to the consensus target is 24% but we would note that the consensus target is still above the 52-week high.

The Boeing Company (NYSE: BA) traded at $71.05 with a market value of $53.2 billion.  The consensus target price from Thomson Reuters is $86.08 and the 52-week trading range is $56.01 to $78.35.  This DJIA component’s most recent yield was listed as about 2.5%. The implied upside to the consensus target is 21% but we would note that the consensus target is almost $8.00 higher than the 52-week high and you have to go back to before the recession to find Boeing shares that high.

Caterpillar Inc. (NYSE: CAT) traded at $91.25 with a market value of $59.5 billion.  The consensus target price from Thomson Reuters is $130.95 and the 52-week trading range is $67.54 to $116.95.  Caterpillar’s most recent yield was listed as 2.0%. The implied upside to the consensus target is 44% but we would note that the consensus target is almost 10% above the 52-week high.

Deere & Company (NYSE: DE) traded at $74.50 with a market value of $30 billion.  The consensus target price from Thomson Reuters is $92.79 and the 52-week trading range is $59.92 to $89.70.  Deere’s most recent yield was listed as 2.4%. The implied upside to the consensus target is about 25% but we would note that the consensus target is about $3.00 higher than the 52-week high.

The Dow Chemical Company (NYSE: DOW) traded at $30.00 with a market value of $35.9 billion.  The consensus target price from Thomson Reuters is $37.23 and the 52-week trading range is $20.61 to $37.30.  Dow’s most recent yield was listed as a very high 4.2%. The implied upside to the consensus target is 24% but we would note that the consensus effectively is the same as the 52-week high.

E. I. du Pont de Nemours and Company (NYSE: DD) traded at $48.40 with a market value of $45.3 billion.  The consensus target price from Thomson Reuters is $58.33 and the 52-week trading range is $37.10 to $56.20.  DuPont’s yield was listed as about 3.5%. The implied upside to the consensus target is 20% and that target is about $2.00 above the 52-week high.

Danaher Corp. (NYSE: DHR) traded at $51.85 with a market value of $35.9 billion.  The consensus target price from Thomson Reuters is $60.95 and the 52-week trading range is $39.34 to $56.45.  Danaher’s most recent yield was tiny at only 0.2%. The implied upside to the consensus target is only about 17% and it is worth noting that the analyst consensus target is more than $4.00 above the 52-week high.

Illinois Tool Works Inc. (NYSE: ITW) traded at $54.40 with a market value of $26 billion.  The consensus target price from Thomson Reuters is $61.53 and the 52-week trading range is $39.12 to $59.27.  ITW’s most recent yield was listed as 2.6%. The implied upside to the consensus target is only about 13%, making this the least ‘implied upside’ winner of the lot.  This one is also only down about 8% from its most recent high as well.

You can see that there is a very mixed bag here.  The Dow Chemical Company (NYSE: DOW) leads in the dividend department with a 4.2% yield.  Caterpillar Inc. (NYSE: CAT) is the leader with ‘implied analyst upside’ of 44% but it seems a stretch in the upside if you look at where the stock has been and how volatile the stock has been.  Illinois Tool Works Inc. (NYSE: ITW) has the least amount of ‘implied analyst upside’ but it has also held up among the best during the market sell-off.

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JON C. OGG

At a time when Treasury yields have been nonexistent, MLP investors have been able to get high payouts that are viewed as quasi-dividends, due to some payouts representing income and some representing return of capital. The question to ask now is whether the risk-reward is there for new investors at the current prices. The unit prices of many key MLPs have been hit hard along with stocks in the past few weeks, and we wanted to take a risk-reward look for summer 2012. This sector could get a recovery, or it could face additional pressure like we saw in 2011.

If investors have been involved in the MLP sector since before, during or right after the great panic selling of 2008 and 2009, they are up huge if they held on. In many cases they have doubled their money or more. And as far as they are concerned they have been getting 5% to 8% in payouts each year (again, some income and some return of capital). The problem is that the prices here have become choppy and the MLP structures often have had secondary offerings on top of secondary offerings. Those secondary offerings have provided growth and acquisition capital, but some investors have started to worry that these secondary offerings may be the biggest contribution to the never-ending payout increases that have been seen in this sector.

MLPs in the energy space often attract the same sort of investors who would buy utility shares and preferred shares of banks, but they also overlap with REIT investors who look for above-market yields. This sector has enjoyed large price gains in the unit (share) prices, and investors are looking for any safe investments that have high payouts, compared to the world of no-returns in CDs and Treasuries. A wave of secondary offerings from many MLPs came before and during the recent market sell-off.

24/7 Wall St. has evaluated some of the top MLP investments to see how much implied upside remains in this sector. We have taken price performance as far as the sell-off from recent highs, as well as issues like the payout ratios (implied yield-equivalent) and the consensus price targets from Thomson Reuters. We have evaluated the following MLPs: Enterprise Products Partners LP (NYSE: EPD), Kinder Morgan Energy Partners LP (NYSE: KMP), Plains All American Pipeline LP (NYSE: PAA), ONEOK Partners LP (NYSE: OKS), Energy Transfer Partners LP (NYSE: ETP) and Enbridge Energy Partners LP (NYSE: EEP). These MLPs mentioned and covered here are some of the ones we track and keep on our watch list in the sector. These have market caps above $8 billion, they have a history of increased payouts each quarter, for the most part, and generally speaking these MLPs are all believed to have good management teams.

Investors have made a bundle here in this sector. MLPs are not really all that correlated to the price of oil because these are the partnerships (general and limited) for pipelines, terminals, and other facilities involved in the oil and gas sector in America. MLPs must derive 90% of their income from real estate, natural resources and commodities. The issuing of K-1 statements can make the structure more complicated, but the payouts often make that worth it for many investors seeking higher streams of cash flow.

We also have evaluated some of the key ETFs and closed-end funds in this sector. Be advise that just the three vehicles we have tracked in funds and ETFs have a combined market value of more than $11 billion.

Refiners are no better off: Valero Energy Corp. (NYSE: VLO) is down -7.7% in the past month, Marathon Petroleum Corp. (NYSE: MPC) is down about -9.8%, while Tesoro Corp. (NYSE: TSO) is up a bare 0.4%. Refiners have been surviving off the wide differential between WTI and Brent crudes and as the differential narrows, profits are harder to come by.

For the integrated oil companies, the price of crude has been the determining factor in a company’s profit picture: the higher the price, the bigger the profit. That makes sense. For the services company, higher prices typically mean more work as producers want to get more oil to sell.

Because crude prices are at a seven-month low now, we thought it would be interesting to look for value in some of the big oil stocks. After all, low crude prices mean share sell-offs, so there ought to be some value left on the table.

With the exceptions of Exxon and Chevron, all the companies we looked at have implied gains exceeding 30% if analysts have gotten target prices right. That’s some pretty good value, but we thought we’d try to handicap the race a bit more closely.

Exxon Mobil Corp. (NYSE: XOM) traded at $82.21 and has a market value of $383 billion. The consensus target price from Thomson Reuters is $94.53 and the 52-week range is $67.03 to $87.94. Exxon has a dividend yield of 2.8%. The implied upside to the consensus target is 15%, but we would note that the target is above the 52-week high.

Chevron Corp. (NYSE: CVX) traded at $99.71 and has a market value of $196 billion. The consensus target price from Thomson Reuters is $124.88 and the 52-week range is $86.68 to $112.28. Chevron has a dividend yield of 3.7%. The implied upside to the consensus target is 25%, but we would note again that the target is above the 52-week high.

BP plc (NYSE: BP) traded at $38.26 and has a market value of $121 billion. The consensus target price from Thomson Reuters is $53.25 and the 52-week range is $33.62 to $48.34. BP has a dividend yield of 5.2%. The implied upside to the consensus target is 39%, but we would note again that the target is above the 52-week high.

Schlumberger Ltd. (NYSE: SLB) traded at $67.47 and has a market value of $89 billion. The consensus target price from Thomson Reuters is $89.20 and the 52-week range is $54.79 to $95.53. Schlumberger has a dividend yield of 1.7%. The implied upside to the consensus target is 32%, and the target price is lower than the 52-week high.

Halliburton Co. (NYSE: HAL) traded at $31.40 and has a market value of about $29 billion. The consensus target price from Thomson Reuters is $47.28 and the 52-week range is $27.21 to $57.77. Halliburton has a dividend yield of 1.2%. The implied upside to the consensus target is 51%, and again the target price is lower than the 52-week high.

Baker Hughes Inc. (NYSE: BHI) traded at $42.20 and has a market value of about $18 billion. The consensus target price from Thomson Reuters is $56.33 and the 52-week range is $39.40 to $81.00. Baker Hughes has a dividend yield of 1.5%. The implied upside to the consensus target is 33%, and again the target price is well below the 52-week high.

Valero Energy Co. (NYSE: VLO) traded at $22.17 and has a market value of about $12 billion. The consensus target price from Thomson Reuters is $30.15 and the 52-week range is $16.40 to $28.68. Valero has a dividend yield of 2.8%. The implied upside to the consensus target is 36%, and again the target price is above the 52-week high.

Marathon Petroleum Corp. (NYSE: MPC) traded at $36.38 and has a market value of about $12 billion. The consensus target price from Thomson Reuters is $52.50 and the 52-week range is $26.35 to $47.43. Marathon has a dividend yield of 2.9%. The implied upside to the consensus target is 44%, and again the target price is above the 52-week high.

Tesoro Corp. (NYSE: TSO) traded at $23.49 and has a market value of about $3 billion. The consensus target price from Thomson Reuters is $31.36 and the 52-week range is $17.43 to $30.15. Tesoro does not pay a dividend. The implied upside to the consensus target is 34%, and again the target price is above the 52-week high.

For comparison, The SPDR S&P Oil & Gas Exploration and Production ETF (AMEX: XOP) traded at $50.45 in a 52-week range of $37.67 to $65.58. That’s about 30% below the 52-week high. The Market Vectors Oil Services ETF (AMEX: OIH) traded at $37.47 in a 52-week range of $35.32 to $45.14, again about 30% below the 52-week high.

Target prices for the large integrated oil companies are above 52-week highs, as are target prices for the refiners. Unless the price of crude rises sharply, the targets are out of reach for the integrated companies. For refiners, they’re whipsawed if prices for WTI open a bigger gap versus Brent or if WTI rise and Brent falls. No chance at those targets either way.

Targets for the services companies are lower than 52-week highs, which improves the chances of hitting those targets. Schlumberger, the largest of the services companies, and Baker Hughes both look appear to have the best chance to boost their share prices.

Paul Ausick

At issue may be a stock market stabilization, or perhaps it is a stabilization aimed solely at the commodities and those companies which profit from either the rise of commodity prices or the rise of the demand for those commodities. It was just yesterday evening that Dennis Gartman of the Gartman Letter was talking up gold miners as his method of choice to play the current bounce in gold.

To show just how much implied upside there is we found some large cap gold stocks that have upside of about 100% and many of the big players have implied upside of well over 50%.  The key ETFs for these miners show just how widespread the damage was during the last sell-off.  The Market Vectors Gold Miners ETF (AMEX: GDX) trades at $43.35 against a 52-week trading range of $39.08 to $66.98 and that is down about 35% as a group from the highs.  The Global X Silver Miners ETF (AMEX: SIL) trades at $18.00 against a 52-week range of $16.54 to $29.05 and that is down almost 38% from its high in the last year.

We included the implied dividend yields but due to foreign issues and ADRs causing currency translations and due to some payouts not being quarter like U.S. companies do, we would urge you to only consider the dividend as a footnote and something you should be verifying on your own.  Besides that, who buys gold (and silver) miners because of their dividend yields only?

We have evaluated the following large-cap gold stocks: Barrick Gold Corporation (NYSE: ABX); Goldcorp Inc. (NYSE: GG); Newmont Mining Corp. (NYSE: NEM); AngloGold Ashanti Ltd. (NYSE: AU); Kinross Gold Corporation (NYSE: KGC); Agnico-Eagle Mines Ltd. (NYSE: AEM); Gold Fields Ltd. (NYSE: GFI); Yamana Gold, Inc. (NYSE: AUY); IAMGOLD Corp. (NYSE: IAG); Harmony Gold Mining Co. Ltd. (NYSE: HMY); Eldorado Gold Corp. (NYSE: EGO); and Royal Gold, Inc. (NASDAQ: RGLD). We have covered also two of the larger silver players of Silver Wheaton Corp. (NYSE: SLW) and Pan American Silver Corp. (NASDAQ: PAAS).

Barrick Gold Corporation (NYSE: ABX) traded at $37.60 and has a market value of $37.6 billion.  The consensus target price from Thomson Reuters is $59.10 and the 52-week range is $34.82 to $55.95.  Barrick has a dividend yield of 2.2%. The implied upside to the consensus target: 57% but we would note that the target is above the 52-week high.

Goldcorp Inc. (NYSE: GG) traded at $34.90 with a market value of $28.2 billion.  The consensus target price from Thomson Reuters is $60.42 and the 52-week trading range is $32.16 to $56.31.  Goldcorp’s most recent yield was listed as 1.6%. The implied upside to the consensus target is 73% but we would note that the consensus target is still above the 52-week high.

The admission of a $2 billion loss due to improper hedging losses was one thing from J.P. Morgan.  The problem is that Jamie Dimon signaled that the losses could widen out further in the months ahead.  Ultimately the bank will be out of those trades, but these are apparently illiquid enough that the bank cannot simply say “market-sell order” to another trading desk.  J.P. Morgan Chase also has exposure to Europe and elsewhere at a time when BRIC growth has been slowing substantially and while Europe is in meltdown mode.

Wells Fargo is just more of a traditional bank that makes its money off of deposit management, client advisory services, brokerage, loans, and mortgages.  The bank also still trades at a premium to its book value of $25.45 as of March 31, 2012. Its share price is $31.37 after a 1.4% gain today and the 52-week range is $22.58 to $34.59.

J.P. Morgan Chase & Co. (NYSE: JPM) has now joined Bank of America Corporation (NYSE: BAC) and Citigroup, Inc. (NYSE: C) in trading at substantial discounts to their prior book values.  As we have said over and over, book value is the ceiling right now rather than the floor. When investors believe that book values will be dropping or that a bank’s earnings power is drained, does book value even matter?  It is not as though the banks could auction off those assets and realize that price overnight.

The book value of J.P. Morgan Chase & Co. (NYSE: JPM) was $47.60 at the end of the first quarter.  That compares to $46.59 the previous quarter and compares to $43.34 in the first quarter of 2011.  J.P. Morgan shares are down 2.6% at $32.62 after two broker downgrades today.

Bank of America Corporation (NYSE: BAC) reported that its stated book value is $19.83 per share, and its tangible book value was $12.87 per share.  BofA trades at $6.88 after a 2% drop today.

Citigroup, Inc. (NYSE: C) reported that its book value was $61.90 on the stated value methodology and its tangible book value was $50.90 at the end of March.  Citi trades at $26.18 after a 0.6% gain today.

Jamie Dimon might still be the strongest CEO in the room, but as of now it is Wells Fargo that is the safest of the big money-center banks.

JON C. OGG