Big names, small prices

9/29/2008


A dismal market has punished many big-name stocks, cutting them down to levels not seen in years.

The market decline has been broad-based. Many stocks are down for good reason, and shares of companies unable to deliver solid profit growth will likely continue to struggle. But plenty of high-quality, big-name companies have also lost substantial stock-market value.

Among stocks in the S&P 500 Index, some 157, or 31%, trade below $25. A year ago, only 17% were priced that low. More than half of the index’s stocks trade at least 25% below their 52-week high, with these 287 stocks down an average of 43%.

Instead of piling into big names and former high-fliers down on their luck, investors should be selective, focusing on high-quality stocks supported by solid Quadrix® scores.

To be sure, even shares of good companies with solid Quadrix scores suffer when the market stumbles. The 127 stocks in the S&P 500 that score above 80 for Quadrix Overall have fallen an average of 30% from 52-week highs.

Subscribers seeking a shopping list of rebound candidates should follow the Forecasts’ approach of emphasizing reasonably valued stocks with strong Overall scores.

The 15 big-name stocks listed below trade around $25 or less and are well below their 52-week highs. In addition, all 15 earn Quadrix Overall scores of more than 70 and above-average Value scores. Two attractive picks are reviewed below.

With Manitowoc ($18; NYSE: MTW) down nearly 65% from its 52-week high set on Dec. 26, there is plenty of room for a rebound. The company is divesting its shipbuilding unit to focus on the crane and foodservice-equipment businesses. The crane unit, which generated 82% of revenue in the six months ended June, is Manitowoc’s main growth engine. Management forecasts strong crane demand through 2010, reflecting market-leading positions and a broad footprint. In addition, favorable crane rental rates and a tight market for used equipment should sustain growth. Manitowoc’s pending acquisition of Enodis, a maker of commercial kitchen equipment, should bolster the foodservice business. Manitowoc earns a Quadrix Overall score of 95, paced by a 99 in Value. The stock is a Focus List Buy and a Long-Term Buy.


Disk-drive maker Western Digital ($21; NYSE: WDC) has seen its shares suffer in recent months, reflecting concerns about aggressive pricing and sluggish demand for desktop computers. Those worries, along with management’s soft September-quarter guidance, drove the consensus per-share-profit estimate for fiscal 2009 ending June to $3.77, down from $4.12 two months ago and below the $4.31 earned in fiscal 2008. Absent a freefall in consumer spending on electronics and computers, Western Digital seems capable of exceeding expectations, based on its growing market share and new products. Profit margins have improved in recent quarters, and stricter cost controls should sustain this trend. Meanwhile, Western Digital looks undervalued at just six times estimated year-ahead earnings. Western Digital is a Buy. 

BIG-NAME STOCKS UNDER $25
The 15 stocks listed below earn Overall scores above 70 and above-average Value scores. While only three are rated Buy, the list represents an intriguing collection of industry leaders.
%
Below
52-Wk.
High
Price
(%)
—————— Quadrix Scores * ——————
Company (Price; Ticker)
Momen-
tum
Value
Earns.
Ests.
Perfor-
mance
Overall
Advice
Archer-Daniels-Midland ($24; ADM)
(51)
77
91
14
15
76
Not
Rated
CA ($21; CA)
(26)
90
72
72
41
94
Not
Rated
Cisco Systems
($23; CSCO)
(34)
55
65
60
43
87
Neutral
Corning ($16; GLW)
(42)
83
84
5
15
92
Neutral
EMC ($12; EMC)
(52)
87
68
26
21
86
Neutral
Gap ($18; GPS)
(17)
83
74
97
67
96
Not
Rated
Intel ($19; INTC)
(33)
62
60
11
30
73
Neutral
Manitowoc
($18; MTW)
(65)
85
99
42
5
95
Focus
Buy †
NetApp ($18; NTAP)
(44)
70
72
20
26
84
Not
Rated
News Corp.
($13; NWSa)
(45)
87
94
52
18
95

Not
Rated

Oracle ($20; ORCL)
(17)
74
55
14
46
83
Buy †
Pfizer ($18; PFE)
(30)
59
88
82
49
88
Neutral
Steel Dynamics
($21; STLD)
(49)
94
89
84
20
99
Not
Rated
Texas Instruments
($22; TXN)
(41)
38
86
6
21
82
Neutral
Western Digital
($21; WDC)
(47)
94
98
80
25
100
Buy
* Quadrix scores are percentile ranks, with 100 the best.    
† Also qualifies as a Long-Term Buy.

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