Alcatel-Lucent (NYSE: ALU) Cut to Hold at Deutsche Bank.
American Water Works Co. (NYSE: AWK) Reiterated Buy at Gabelli.
Aqua America Inc (NYSE: WTR) Reiterated Buy at Gabelli.
China Unicom (NYSE: CHU) Cut to Neutral at Credit Suisse.
City National Corporation (NYSE: CYN) Raised to Neutral at BofA/ML.
Commerce Bancshares Inc. (NASDAQ: CBSH) Cut to Underperform at BofA/ML.
Federated Investors, Inc. (NYSE: FII) Cut to Underperform as Bear of the Day at Zacks.
HollyFrontier Corporation (NYSE: HFC) Cut to Neutral at BofA/ML; Started as Outperform at Oppenheimer.
M&T Bank Corp. (NYSE: MTB) Raised to Buy at BofA/ML.
Microchip Technology Inc. (NASDAQ: MCHP) Maintained Buy but cut target to $40 at Gleacher & Co.
Pegasystems Inc. (NASDAQ: PEGA) Cut to Hold at Canaccord Genuity.
SeaCube Container Leasing Limited (NYSE: BOX) reiterated Buy as Value at Zacks.
Sealed Air Corporation (NYSE: SEE) Raised to Overweight at Barclays.
Suncor Energy Inc. (NYSE: SU) named as Bull of the Day at Zacks.
Tesoro Corporation (NYSE: TSO) Cut to Underperform at BofA/ML.

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JON C. OGG

In alphabetical order of their ticker symbols:  Avery Dennison Corporation (NYSE: AVY); Bemis Company, Inc. (NYSE: BMS); Dean Foods Co. (NYSE: DF); Johnson Controls Inc. (NYSE: JCI); Kraft Foods Inc. (NYSE:  KFT); Leggett & Platt, Incorporated (NYSE: LEG); Newell Rubbermaid Inc. (NYSE: NWL); Phillips-Van Heusen Corp. (NYSE: PVH); Rock-Tenn Co. (NYSE: RKT); Sealed Air Corporation (NYSE: SEE); and, Xerox Corp. (NYSE: XRX).

Price to book values range from Xerox’s 1.1 to Johnson Controls’ 2.4.  Even though we identified these companies in searching for attractive price to book values, every one of them offers respectable next-year earnings growth.  Analysts expect next-year earnings expansion ranging from Newell Rubbermaid’s 10.6% to Rock-Tenn’s 39%.  All sport forward PE multiples below 14.   Forward PE’s range from Xerox Corp’s 8.1 to Kraft Foods’ 13.9.

Seven of the eleven companies boast an implied upside price expansion exceeding 20%, based on current share prices versus consensus price targets. Leggett & Platt, Newell Rubbermaid, Xerox and Johnson Controls lead the rest with implied price expansions ranging from more than 27% to close to 31%.  Each of these eleven companies has an average daily trading volume exceeding 750,000 shares. Except where otherwise noted, the source for all performance and financial data is Finviz.com.

Avery Dennison Corporation (NYSE: AVY) has a price to book value near 2.3  to 1.  The company’s market cap is just less than $4 billion giving it a middle-of-the-pack rank among these companies.  Its forward PE is about 10.2.  With a consensus target price of $46.71, the shares have an implied upside exceeding 25%.  Shares of Avery Dennison closed Friday at $37.19, down 1.56%.  The 52-week price range is $30.54 to $43.26.  This outfit that makes labels and other office products recently took a downgrade to “Neutral” at Bank of America Merrill Lynch.  It pays a nice dividend with a yield of close to 2.7% and shares were above $60 back in 2007 before the recession.

Bemis Company, Inc. (NYSE: BMS) has a price to book value of 1.8  to 1.  The company’s market cap is just less than $3.4 billion.  Its forward PE is near 12.5.  With a consensus target price of $34.89, the shares have an implied upside of 8.6% among the lowest of these companies.  Bemis Company shares closed Friday at $32.11, down 0.43.  The 52-week price range is $25.79 to $33.57. The packaging materials company also has a respectable dividend yield of about 3%, even if Goldman Sachs did downgrade the rating to “Sell” in recent weeks..

Dean Foods Co. (NYSE: DF) boasts a price to book value of 1.4  to 1, ranking it second among these companies.  The company’s market cap is $2.2 billion, the smallest of these companies.  Its forward PE is near 13.2, among the highest on this list.  With a consensus target price of $13.50, the shares have an implied upside 12.5%.  In Friday trading Dean Foods closed at $12.00, down 1.80% for the day.  The 52-week trading range is $7.13 to $13.90.  This milk and dairy producer has been in recovery mode.  It made this screen even after a recovery of more than 75% from the bottom.  In 2007, shares were worth more than $40.00.

Johnson Controls Inc. (NYSE: JCI) has a price to book value of 2.4 to 1, a comparatively high price to book value ratio among these companies.  With a market cap exceeding $26 billion, Johnson Controls is the second largest company ranked here.  Its forward PE is a tad greater than 12.  After robust expansion of earnings for the current year, analysts expect next-year earnings expansion exceeding 34%.  With a consensus target price of $48.50, the shares have an implied upside of 23.8%.  Shares of Johnson Controls closed Friday at $39.17, unchanged.  The 52-week price range is $25.63 to $42.35.  The car parts and systems manufacturer is one of the few which pay a dividend (about 1.6%) and this one has recovered mightily from the recession lows when shares fell to well under $10.00.

When we look for bargain basement price-to-book value, there are many more factors to consider.  Analysts actually expect each of these companies to realize positive earnings growth next year, with earnings growth estimates ranging from 5.5% to more than 57%.  Each of these companies have very low implied forward P/E ratios, which actually fall between 6.4 to 11.4.  We also only consider liquid shares as well and each of these have an average daily volume exceeding one million shares.  Five of the seven companies trade more than 10 million shares daily.  These are some of the same criteria which large value investors look for.  Except where otherwise noted, the source for all performance and financial data is Finviz.com.

There are a few more considerations here.  Book value is retroactive and we are late in the quarter.  Admittedly, there are more considerations than a price against a stated equity value.  There is also often a difference between book value screens and what true vultures look at in a tangible book value after you strip out goodwill and intangible assets.  This was the first of two or three book value reviews.  While discounted companies are often buyout targets for other companies and for private equity, these companies are in most cases probably too large to be considered buyout targets. Most companies trade under book value for a reason, but some of these companies do not have troubles that caused the company to look cheap.

Bank of America Corporation (NYSE: BAC) trades at close to half its book value, or at least so the screen value denotes. Our take is a far less ‘discount” as we previously noted, “Some still-bullish investors may heed that $13.21 book value as a safety net, but the bears may argue that the figure should act more like a ceiling.”  Also, how does one truly value a bank in today’s climate?  You have to trust what management states as book value. Its forward PE of 6.4 also outshines the other six companies described here.  Does America’s largest bank by deposits truly expect to live up to those estimates ahead?  Your guess is as good as ours.

While currently undergoing earnings challenges, analysts look for Bank of America to post more than 55% earnings growth next year.  In Tuesday trading, Bank of America’s shares closed at $10.83, up 2.17%, and it has a market cap of more than $100 billion.  Its 52-week price range is $10.40 to $16.05.

Bunge Limited (NYSE: BG) sports a price to book value of 0.77.  This world-wide basic foods company offers a forward PE less than 10.5.  Bunge’s shares closed at $66.95 in Tuesday trading, up 2.34%.  Its 52-week trading range is $45.18 to $75.89.  With a value of nearly $10 billion, this agriculture and food giant was surprising to see trading with a market cap under its $11.5 billion in net tangible assets.  It was surprising to see the soy bean giant in this group, but perhaps it is worth noting that Bunge shares traded between $100 and $120 back as recently as early 2008 before the recession kicked into high-speed.

Citigroup, Inc. (NYSE: C) is another bank which is easy to argue about true book value against tangible book value.  Still, it trades at about two-thirds of its book value in our screen.   with a price to book ratio of 0.67, places among the best companies in this lineup.  The financial giant’s forward PE is 7.43.  In the aftermath of the world-wide financial crisis, Citigroup is realizing year-over-year earnings growth of 146% this year, with 27.5% expected next year. Will it live up to those expectations?  Again, your guess is as good as ours.  In Tuesday trading, Citigroup’s shares closed at $39.31, up 3.01%.  Its 52-week price range is $36.19 to $51.49.  At its latest earnings report, Citigroup gave a book value per share of $5.85 with a tangible book value per share of about $4.69; now listed as $58.50 and $46.90 after its reverse split.

American International Group, Inc. (NYSE: AIG) Started as Buy at Deutsche Bank; Started as Equal-Weight at Barclays.
BJ’s Wholesale Club Inc. (NYSE: BJ) Cut to Equal-Weight at Barclays.
BorgWarner Inc. (NYSE: BWA) Reiterated Outperform at Wells Fargo.
CIENA Corporation (NASDAQ: CIEN) Maintained Outperform but cut target to $37 at Credit Suisse; Reiterated Buy with $30 target at Argus.
Elan Corp. plc (NYSE: ELN) Raised to Buy at UBS.
Embraer S.A. (NYSE: ERJ) Reiterated Strong Buy as Value and as Bull of the Day at Zacks.
Ferrellgas Partners (NYSE: FGP) maintained Underperform as Bear of the Day at Zacks.
3M Co. (NYSE: MMM) Started as Outperform at William Blair.
Macy’s, Inc. (NYSE: M) Raised to Overweight at Barclays.
McDonald’s Corporation (NYSE: MCD) Reiterated Outperform and raised estimates at Credit Suisse.
The Medicines Co. (NASDAQ: MDCO) Raised to Buy with $25 target at Argus.
Nasdaq OMX Group Inc. (NASDAQ: NDAQ) Raised to Buy at Stifel Nicolaus.
Research in Motion Ltd. (NASDAQ: RIMM) Cut to Hold at Citi.
Sealed Air Corporation (NYSE: SEE) Raised to Buy at Jefferies.
Texas Instruments Inc. (NYSE: TXN) Reiterated Buy but cut target to $41 at Gleacher & Co.
UnitedHealth Group, Inc. (NYSE: UNH) Reiterated Outperform and raised target to $69 at Credit Suisse.
United Technologies Corporation (NYSE: UTX) Started as Outperform at William Blair.

Apple Inc. (NASDAQ: AAPL) has reportedly been downgraded this morning by a boutique firm called First Global to a rating of “Market Perform.”

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JON C. OGG

Anadarko Petroleum Corporation (NYSE: APC) Riased target to $86 from $74 at Credit Suisse.
Apache Corporation (NYSE: APA) Started as Outperform at Credit Suisse.
ITT Corporation (NYSE: ITT) Raised targets and estimates at BofA/ML.
KEMET Corp. (NYSE: KEM) Started as BUy at KeyBanc.
Penn National Gaming Inc. (NASDAQ: PENN) Maintained as “top operator pick” with raised estimates at Credit Suisse.
PG&E Corp. (NYSE: PCG) Maintained Buy with $56 target at Argus.
Sealed Air Corporation (NYSE: SEE) Started as Neutral at Credit Suisse.
Time Warner Cable Inc. (NYSE: TWC) Reiterated BUY and raised target to $75 at Argus.
Whiting Petroleum Corp. (NYSE: WLL) Reiterated Outperform and raised targets and estimates at Credit Suisse.

You can join our free daily email distribution list to hear more about dividend trends, analyst upgrades and downgrades, top day trader and active trader alerts, news on Buffett and other investment gurus, IPOs, secondary offerings, private equity, and more.

JON C. OGG

Jon C. Ogg
July 25, 2007