Screening Large Cap Value Stocks (DELL, KMB, DGX)

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This week we bring reviews of “value stocks” for long-term investors by 24/7 Wall St.   Monday’s focus is mostly on large-cap stocks that are easily recognized and which have large positions in their markets.  Generally speaking, value stocks require sub-market P/E ratios (under 15) and these often focus around cash and/or book value.  Our “value stock” screens are starting the week out with shares of Dell Inc. (NASDAQ: DELL) in tech and computers, Kimberly-Clark Corporation (NYSE: KMB) in consumer products, and Quest Diagnostics Inc. (NYSE: DGX) is healthcare diagnostics.

We always have a focus on dividends and the ability to grow payouts.  In each of these we have given forward implied P/E ratios, and given more financial data and additional color where applicable.  The one issue we always have to throw out in value stocks is that value stocks often lack momentum or catalysts to drive higher share prices.  These generally require time and patience to pan out.

Dell Inc. (NASDAQ: DELL) is managing to turn itself from a former growth PC player into a value stock, and its shares are holding up better than rival Hewlett-Packard Co. (NYSE: HPQ).  Being in the PC business now almost seems so 1990s and that is why both Dell and H-P have been trying to migrate into new IT/services and other data center and enterprise efforts. There was a time Michael Dell was considering trying to take the company private.

You already know that the excitement in the PC and consumer electronics segment remains Apple Inc. (NASDAQ: AAPL).  Dell has still been managing to beat its earnings expectations in each of the last four quarters and Thomson Reuters has earnings estimates of $1.70 EPS for its fiscal year January-2012 and $1.76 EPS for January-2013.

Unlike H-P, Dell is actually close to 52-week highs.  At $16.37, its 52-week range is $11.34 to $16.80 and shares are up close to 10% in the last two months.  The company has some distractions in its smartphones and it is not considered a huge tablet-PC winner yet.  On a forward earnings blend, Dell trades at only 9.5-times forward earnings.  Its market cap is $31 billion and the company has nearly $15 billion in cash and investments with which it can make acquisitions, buy back stock, or decide to finally start paying a dividend.  If Cisco is a dead stock and can finally start paying a dividend, Dell can as well.

Thomson Reuters has a consensus value of $16.67 for the stock, but this could go back up to $20.00 if Dell wants to be more shareholder friendly (i.e. dividends and buybacks). The biggest concern about both Dell and H-P here is that earnings are coming this week.  H-P remains cheaper on forward earnings but the company is considered to be in more disarray with management changes.

As with most value stocks, there is rarely a hurry and being a patient investor can always be more prudent than piling into shares pre-news just because someone says “there is value in the shares.”