Before just considering book value, we always look for more.  We looked for companies which are still expected to have respectable earnings growth.   Analysts expect next year earnings expansion ranging from Raytheon’s 12.8% to Kennametal’s 23.5% growth.  We have also considered a consensus price target from analysts for those companies which have implied upside for investors, and this group ranges from 16% to 33% upside.  We also only consider liquid issues, and the floor for this group was average daily trading volume exceeding 750,000 shares. Except where otherwise noted, the source for all performance and financial data is Finviz.com.

Eaton Corporation (NYSE: ETN) has a price to book value of 2.1  to 1.  Eaton’s market cap is almost $17 billion, ranking it second among these companies.  Its forward PE is about 10.5, placing it in the top-tier of these companies.  With a consensus target price of $60.96 from Thomson Reuters, Eaton has an implied upside exceeding 24%.  In Thursday trading Eaton’s shares closed at $48.85 and the 52-week price range is $30.65 to $56.12.  The power management company is now larger than what we would expect as an acquisition target as its market cap is north of $16 billion, so if you like Eaton it better be for its own merits. If analysts are right, that $60.96 would be an all-time high.  Our caveat in Eaton is that a substantial portion of its “value” in equity is tied to intangible assets and goodwill.

Kennametal Inc. (NYSE: KMT) posts a 2.2 to 1 price to book value.  This is sometimes a bit high by our count, but the specialty materials and metalworking outfit is one that has the right size and the right angle for many value investors.   Its market cap is $3.3 billion, making it the smallest company discussed here.  Its forward PE is less than 12.  With a consensus target price of $48.45, Kennametal has an implied upside of 19%.  In Thursday trading Kennametal shares closed at $40.63 and the 52-week trading range is $23.75 to $43.84.

Republic Services, Inc. (NYSE: RSG) boasts a 1.5 to 1 price to book value, best among these companies.  Imagine, value in garbage.  Its market cap is almost $12 billion.  Its forward PE is slightly less than 14.5 With a consensus target price of $36.17, Republic has an implied upside of 16%.  In yesterday’s trading Republic’s shares closed at $31.1, down 0.06%.  The 52-week price range is $27.33 to $33.10.  What is interesting about Republic is that its screened criteria made this one a stock which we said was one of our Ten Stocks To Own For The Next Decade.  Its rival Waste Management, Inc. (NYSE: WM) is often in the same boat and much of the value analysis is relative between the two companies.  This was also formerly a Warren Buffett stock, but it was still a Bill Gates holding when we last looked.

Raytheon Co. (NYSE: RTN)  sports a 1.7 to 1 price to book value. Its market cap exceeds $17 billion, largest among these companies.  Its forward PE is lower than 9, ranking it first among this list of companies.  With a consensus target price of $56.41, Raytheon has an implied upside of 16%. In Thursday trading Raytheon shares closed at $48.39, down 1.49%.  The 52-week price range is $41.60 to $52.67.  This defense stock was one of our higher-yield dividend defense stocks reviewed as the fighting in Libya escalated.  The maker of the Patriot Missile system and many other defense and war technologies also carries a large amount of goodwill and the reason it has low earnings multiples is because the Department of Defense is under significant budget pressure which is not going to go away.

Stanley Black & Decker, Inc. (NYSE: SWK) posts a 1.7 to 1 price to book value, placing it in the top-tier of these companies.  We do want to make the reminder that this tool-maker for builders and carpenters (and for you around your house) is now the “newly amalgamated” Stanley and Black & Decker after the merger.  The company is also still considered by many investors to be searching for acquisitions as well.  Its market cap is almost $12 billion and it carries a forward P/E ratio of less than 12.  With a consensus target price of $86.13, Stanley Black & Decker has an implied upside of 21%. In trading yesterday the company’s shares closed at $71.06 and the 52-week trading range is $47.64 to $77.75.

Timken Co. (NYSE: TKR)  posts a 2.3 to 1 price to book value. Its market cap is less than $5 billion, ranking it one of the smaller companies listed here.  The company is part of America’s core manufacturing as it makes bearings, seals, and many other internal components for machines and machinery.  Its forward PE is slightly greater than 10, placing it in the top-tier of these companies.  With a consensus target price of $64.86, the machine tool manufacturer has an implied upside of 33%.  In Thursday trading Timken’s shares closed at $48.65, and the 52-week price range is $24.45 to $57.60.  If the target price is realized by analysts, that will mark an all-time high.

While many companies have high balances of goodwill and intangible assets, we are currently looking for value among peers.  We are not considering liquidation values and therefore are not using the analogy that “You can’t pay your rent with goodwill.”

Warren Buffett was quoted back in the 1990s saying, “Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now.”  We don’t go along with the Buffett model of forever any longer, but you get the idea.

This is also not a value review digging through the garbage heap.  As one investment manager said at The Value Investing Congress when asked about how she starts her screens for finding value stocks, “Actually, I usually start my screens by seeing which stocks have been hitting 52-week lows for a while.”  There would not be a value category of the growth trajectory was never interrupted and if problems had not arisen.

Elsewhere in recent value picks looking for book value discounts:

• Looking for Deep Value in Basic Materials
• Banks, Tech, and Others close-to or under book value

JON C. OGG & JIM BERDOU

Real Hike, Real Payouts….

Cliffs Natural Resources Inc. (NYSE: CLF) voted early this week to increase the quarterly cash dividend by 60% to $0.14 per share.  That is close to a yield of 2% now after the drop in the stock.

CPI Corp. (NYSE: CPY) also voted early this week to increase its quarterly dividend payout by 25% up to $0.25 per quarter.  The yield today would be about 3.3%.

FactSet Research Systems Inc. (NYSE: FDS) approved a 15% hike to $0.23 per quarter in dividends from a prior rate of $0.20 per quarter.  This is about 1.15% today for a dividend yield.

Keithley Instruments Inc. (NYSE: KEI) increased its quarterly dividend early this week to a rate of $0.0375 per share, and this new dividend yield is almost 1.5%.

Mine Safety Appliances Co. (NYSE: MSA) must be expecting new business lines…  today declared a second quarter dividend of $0.25 per quarter, up a penny from the prior $0.24 per quarter dividend that had been in place since early 2008.

OPNET Technologies Inc. (NASDAQ: OPNT) hiked its payout after earnings early this week. It raised its quarterly dividend to $0.10 per quarter for almost a 2.4% yield.  That is $0.40 per year, up from $0.36 per year for 2009.

Portland General Electric Company (NYSE: POR) announced Thursday night that it was boosting its dividend to $0.26 per share per quarter from a rate of $0.255 previously.  The last three hikes have come each year and have been by a full penny rather than by a half-penny per quarter.  This still generates more than a 5% yield.

The Timken Company (NYSE: TKR) announced earlier this week that it declared a quarterly cash dividend of $0.13, up 44% or versus a $0.09 prior dividend.  This is after the company had seen its dividend go down to $0.09 from $0.18 previously in 2009, so this dividend raise is a game of moving back to even.

Dividend Hints……

Ford Motor Co. (NYSE: F) also hinted this week at a dividend return for shareholders, but the news we saw was that it is starting its education pay plan first after it repays more debt.  Don’t hold your breath here for a dividend on the common shares any time in the immediate future.

BB&T Corp. (NYSE: BBT) hinted earlier this week that it would be among the first of the big banks to raise its dividend.  On CNBC it seems that the hint was for a fourth quarter dividend raise, although it is no secret that the new environment is one where regulators have told banks to build capital reserves over paying out higher common dividends.  The current rate is $0.15 per quarter, but that was down from $0.47 previously and the current payout was what it was in the 1990′s.

The Dow Chemical Company (NYSE: DOW) declared a dividend of $0.15… this is one we still expect that will buckle to peer pressure and may consider raising its dividend later this year.  Much depends upon the merger integration from the 2009 Rohm & Haas deal and the notion that its business is just coming back.  The current $0.15 per quarter still generates a yield of close to 2.2%, but this is down from $0.42 before it cut that dividend over a year ago.

Cedar Fair LP (NYSE: FUN) has seen this week with its largest shareholder (Q Funding) demanding that the company reinstate an annual dividend of $0.50 per share after suspending it in 2009.  That does not assure a hike, but that is the largest holder.  A $0.50 dividend would have an indicated yield before any share price changes of approximately 3.7%.

BP plc (NYSE: BP) has been in the soup over the Gulf of Mexico spill, but this week it declared on Tuesday that its board of directors has approved on April 27, 2010 an interim dividend of USD$0.14 per ordinary share or USD$0.84 per ADS for the first quarter 2010.  This is technically a U.K.-based company, so it is doubtful that the administration can nix the dividend.  Still, you have to wonder with cost estimates all over the board into the billions of dollars for the cleanup and remediation.

And speaking of very dividends, the stock split for Green Mountain Coffee Roasters, Inc. (NASDAQ: GMCR) of 3 for 1 will be reflected next week on the May 17 ex-date.  Not a true dividend because these are generally tax-free events.

Higher Dividends, Maybe Not Hikes….

Span-America Medical Systems Inc. (NASDAQ: SPAN) usually has a $0.10 per quarter dividend, but this week it announced a Special Cash Dividend of $1.00 per share.  That makes the third special dividend, and the regular $0.10 dividend is in effect as well.

Teekay Tankers Ltd. (NYSE: TNK) pays out its income as it comes and is able, so this “higher dividend” should not be considered a true hike.  It announced a cash dividend of $0.37 per share, and here are the prior dividend rates to show the inconsistent rates:

• Mar 4, 2010 $0.26 Dividend
• Nov 18, 2009 $0.15 Dividend
• Aug 20, 2009 $0.40 Dividend
• May 20, 2009 $0.59 Dividend
• Mar 4, 2009 $0.72 Dividend
• Dec 1, 2008 $1.07 Dividend
• Aug 13, 2008 $0.90 Dividend
• May 21, 2008 $0.70 Dividend
• Feb 13, 2008 $0.115 Dividend

Internet Initiative Japan Inc. (NASDAQ: IIJI) is one we have not seen the ADR list a dividend, so this may just be in local currency.  The company said on Thursday’s earnings that its FY2009 year-end cash dividend forecast was revised from JPY1,000 to JPY1,250 per share of common stock (FY2009 total dividend of JPY2,250, up from JPY2,000 as previously planned).

The Downside of Dividends….

FreightCar America, Inc. (NASDAQ: RAIL) this week that its Board of Directors decided not to authorize the payment of a cash dividend on its common shares in the second quarter of 2010 to preserve cash to help maintain its balance sheet strength.

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JON C. OGG

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