The Zacks Analyst Blog Highlights: Vale, BASF, Siemens, Chevron and ConocoPhillips

Fri Aug 26, 2011 9:30am EDT

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The Zacks Analyst Blog Highlights: Vale, BASF, Siemens, Chevron and ConocoPhillips

PR Newswire

CHICAGO, Aug. 26, 2011 /PRNewswire/ -- announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Vale (NYSE: VALE), BASF (OTC: BASFY) Siemens (NYSE: SI) Chevron (NYSE: CVX) and ConocoPhillips (NYSE: COP).


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Here are highlights from Thursday's Analyst Blog:

Megacheap Megacaps

Normally, to find super-cheap stocks you have to look around the fringes of the market to small, obscure, overlooked companies. Not so today, when many of the giants are on the deep discount rack. All of the companies shown below have market capitalizations of more than $50 billion.

As for being cheap, when I compiled my list, I made sure they were cheap on many different dimensions of value. I required that they have single-digit P/Es based on both this year's earnings and next year's. The reality was that none had FY1 P/Es of more than 8.8x and none had a FY2 P/E of more than 8.6x. Next I required that the Price to Book Value be below 2.0 and that the Price to Sales be less than 1.5X.

The final value criteria I required was that the ratio of Enterprise Value (market capitalization plus long--term debt minus cash on hand, or EV) to Earnings before Interest, Taxes, Amortization and Depreciation (EBITDA) be below 7x. If you were to buy the entire company you would have to assume the debt that the company has, but you could also access the cash on hand. At the same time you could use the EBITDA to pay down the debt you incurred to pay off that debt.

EV/EBITDA is one of the favorite metrics used by investment bankers and private-equity types. While it is unlikely that anyone is going to try to do a leveraged buyout on one of these behemoths, it is still a very useful value metric. EBITDA is also less easily gamed than are reported earnings.

Dividend yield was not screened for, but is shown. Some of the foreign firms follow irregular dividend policies, meaning that the dividend yields shown are not entirely accurate. For example, Vale (NYSE: VALE) just paid a $0.575 per share dividend on August 12th, and has paid a total of $1.48 over the last year, but still shows up as having a dividend yield of 0.0%. The distortion to yield is downward. These stocks are actually cheaper than they appear.

I also applied a couple of quality screens. For starters, the expected EPS in 2012 has to be more than what the company earned in 2010. Not a very demanding screen, I grant you, but it also gets rid of firms that are on a declining trend. I also wanted them to have a ROE of more than 12%. They could not be generating a high ROE simply by being leveraged to the eyeballs.

The ratio of Debt to Equity had to be less than 50%. I also eliminated all firms with Zacks Ranks of #5 (Strong Sell) and #4 (Sell). No sense stepping in front of a freight train.

The resulting list was not exactly well diversified, but rather heavily tilted towards energy names, though not exclusively so. There is also a vehicle maker, chemical company BASF (OTC: BASFY), big mining company Vale and big capital goods firm Siemens (NYSE: SI).

Only two of the firms are located here in the U.S., and both are Integrated Oil companies -- Chevron (NYSE: CVX) and ConocoPhillips (NYSE: COP). Germany is highly represented on the list, but while the companies might be headquartered there, they have operations all over the world. The current problems of the euro is probably the reason so many of them show up.

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