The DJIA and S&P 500 Index both hit new highs on Wednesday and we expect to see DJIA 15,000 and also 1,600 on the S&P 500 Index any day now. One thing that we cannot get past right now is how so many great stocks are lagging the broader markets. Many are great companies with solid management teams. Others are troubled.
24/7 Wall St. has identified 5 serious disappointments so far in 2013 which may be coming to mind for value stock investors or those who are looking for the next wave. These stocks remain down year to date, but they are also way down from the 52-week highs as well. The bull market always has stocks which do not carry their weight on the way up, but if things get much better for stocks it seems hard to imagine that these shares will remain in the dog house.
The five stocks that we think need to play serious catch-up are Apple Inc. (NASDAQ: AAPL), Caterpillar Inc. (NYSE: CAT), PetSmart, Inc. (NASDAQ: PETM), United States Steel Corp. (NYSE: X), and Whole Foods Market, Inc. (NASDAQ: WFM). We have used consensus earnings estimates and consensus analyst targets from Thomson Reuters in our valuation analysis.
Apple Inc. (NASDAQ: AAPL) is the one stock we would have predicted that you could have guessed would make this list. CEO Tim Cook is having a very hard time filling the shoes of Steve Jobs. The reality is that anyone would have. Still, a lack of any great new products has plagued the company. A new iPhone or iPad upgrade just isn’t good enough anymore. What is at issue is that Apple was down 40% from its peak recently. After a 2% gain on Wednesday the stock is down over 38% from its $705 peak in 2012 and the stock Apple remains down about 18% year to date. Apple trades at $435 mid-Wednesday and the consensus analyst target is still up at about $615. The highest target price is $888 from Wall Street analysts.
Caterpillar Inc. (NYSE: CAT) is down only 3% so far in 2013, but the stock is actually down about 13% from the highs of January and down 17% from the 52-week highs. The industrial machinery giant has not been able to hold up much love since its debacle over a Chinese buyout due to accounting misconduct. The 2.5% dividend may be somewhat attractive, but the stock remains well below its potential. At almost $87, the consensus analyst target price is all the way up at almost $110 and the highest official analyst price target remains $130 for the stock. This industrial giant trades at just under 11-times this year’s expected earnings and trades at less than 9.5-times expected 2014 earnings. The lack of global growth is weighing here, but valuation remains attractive even if its market cap is almost $57 billion.
PetSmart, Inc. (NASDAQ: PETM) may seem like an inconsequential stock on the surface. It is not inconsequential, and it could in some cases be a harbinger or barometer of how confident consumers are. This is pet spending, and much of the company’s in-store products can be bought many different ways by consumers. This stock is in the midst of a small recovery but the stock remains down 5% so far in 2013 and remains down 11% from its 52-week high. The 1% dividend might just not be exciting enough for its mid-cap value at $6.6 billion. Sales and earnings are expected to keep growing in 2013 and 2014 and the forward earnings multiples are 16.6 for 2013 and 14.5 for 2014. The price of $64.75 compares to an analyst consensus target of $71.25 and a street high of $80 for the stock.
United States Steel Corp. (NYSE: X) has been such a bad stock that investors might begin to think that Alcoa is angelic. Even with stocks at a new high, this one is down on a great day. At $17.92, this stock is down a whopping 25% year to date. It is also down over 36% over the last year. WHat is so interesting is that the consensus price target from Wall Street analysts is above $26. Unfortunately, this 1.2% dividend yield is just not going to enthuse many value buyers. US Steel trades at 18-times this year’s expected earnings but trades at only about 8-times 2014 earnings estimates. The market cap of $2.6 billion keeps the attention elsewhere, but this is a sad state when you consider how large and important the steel giant was at one point. We would point out that this has seen buyout rumors on many occasions in recent years, but the share price now sure doesn’t imply any real hope on that front today.
Whole Foods Market, Inc. (NASDAQ: WFM) has always been hard to justify on valuation metrics if you just consider this a grocery store chain. After all, grocery stores operate on razor-thin margins. That should say “except for Whole Foods.” The reality is that Whole Foods is a luxury brand now and that is the reason it trades at earnings multiples of about twice its peers. Still, after peaking at almost $102 the stock is down under $86 even after a 2% gain on Wednesday. Its market cap is almost $16 billion. This is a key bull market stock because of its high valuations and this is one that needs to recover in the bull market regardless of our own valuation concerns. Analysts have a consensus price target of about $102.50 and the highest analyst target remains $112 for Whole Foods.
We do want to share one mantra when it comes to all sorts of investing whether you look for growth stocks or value stocks. If you expect a stock (or the market) to rise on news and it doesn’t really rise, then chances are high that it is going lower. The inverse holds true as well.