8 Large Companies Valued Under 10 Times Earnings
Investors have to cope with a lot of moving parts in 2015: Greece, China, Iran, rising interest rates, a strong dollar, slow global growth, weakening emerging markets and on and on. The bull market is also now more than six years old. All this has some investors perhaps wondering if they should return to value stocks rather than chasing the growth stocks that have already risen so much.
24/7 Wall St. has been making regular reviews of sectors and assets classes, and now it is time for a deep review of value stocks. This value stock and value investing review focuses on “cheap stocks” that were valued at roughly 10 times current earnings and future earnings. Investors and traders alike know that not all value stocks are equal. Other factors were generally considered in a guideline as well: a dividend yield of 1% or more, a market cap of at least $2 billion, well over 100,000 shares trading per day on average and a U.S.-based operation, to keep the reviews focused.
There is also another key consideration when evaluating the so-called value stocks. Generally speaking, value stocks have a reason that they are at “cheap” valuations or why their share prices are not higher. They usually are closer to 52-week lows than 52-week highs, they may have all their analysts hating the companies or lowering targets, and they generally have either underperforming management or are in a challenged industry. If they were in perfect shape, they simply would not be on this list.
In an effort to screen out the usual suspects that are value traps, 24/7 Wall St. discounted real estate investment trusts (REITs), business development companies, American depositary shares of foreign operations, master limited partnerships (MLPs), depressed oil and gas stocks and companies that would be obvious losers the moment interest rates rise. In short, these are operating companies, with real assets and real businesses. Banks were not included in this review as we have already featured the last seven big banks trading under book value.
Investors need to consider all the issues here. These stocks are valued lower for a reason, and many value stocks can take years to recover. And then there is the risk that they may never recover. We have even shown the most recent short interest data along with the days to cover to show another view of caution. These are the eight stocks valued around 10 times earnings.
One exception here is Micron Technology Inc. (NASDAQ: MU), as it has no dividend. It was included because it has recovered 10% from its 52-week low, it has been thrown around as a buyout candidate and the stock is so widely followed with a $20 billion market cap. Micron is the U.S.-based king of DRAM and is becoming larger in flash memory trends as well. After a massive turnaround and acquisition of Elpida in Japan, Micron’s gain has turned from a major growth and turnaround story into a value stock — meaning that Micron is in a no-man’s land at the current time. When this stock gets back on track is anyone’s guess, but it is valued at roughly six times earnings, even if its revenue recovery has hit headwinds. Micron also now carries over $6 billion in debt, while its cash and short-term and long-term investments is approaching $9 billion.
Micron shares were last seen below $19.00, well below its consensus analyst price target of $29.82. Its 52-week trading range is $17.14 to $36.59. Micron still has a high short interest of 61 million shares, but that is only about 1.5 days to cover and it is far lower than the 100+ million shares short during much of 2014.