Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Micro Strategy Bubble Mania - 10th May 24
Biden's Bureau of Labor Statistics is Cooking Jobs Reports - 10th May 24
Bitcoin Price Swings Analysis - 9th May 24
Could Chinese Gold Be the Straw That Breaks the Dollar's Back? - 9th May 24
The Federal Reserve Is Broke! - 9th May 24
The Elliott Wave Crash Course - 9th May 24
Psychologically Prepared for Bitcoin Bull Market Bubble MANIA Rug Pull Corrections 2024 - 8th May 24
Why You Should Pay Attention to This Time-Tested Stock Market Indicator Now - 8th May 24
Copper: The India Factor - 8th May 24
Gold 2008 and 2022 All Over Again? Stocks, USDX - 8th May 24
Holocaust Survivor States Israel is Like Nazi Germany, The Fourth Reich - 8th May 24
Fourth Reich Invades Rafah Concentration Camp To Kill Palestinian Children - 8th May 24
THE GLOBAL WARMING CLIMATE CHANGE MEGA-TREND IS THE INFLATION MEGA-TREND! - 3rd May 24
Banxe Reviews: Revolutionising Financial Transactions with Innovative Solutions - 3rd May 24
MRNA - The beginning of the end of cancer? - 3rd May 24
The Future of Gaming: What's Coming Next? - 3rd May 24
What is A Split Capital Investment Trust? - 3rd May 24
AI Tech Stocks Earnings Season Stock Market Correction Opportunities - 29th Apr 24
The Federal Reserve's $34.5 Trillion Problem - 29th Apr 24
Inflation Still Runs Hot, Gold and Silver Prices Stabilize - 29th Apr 24
GOLD, OIL and WHEAT STOCKS - 29th Apr 24
Is Bitcoin Still an Asymmetric Opportunity? - 29th Apr 24
AI Tech Stocks Earnings Season Opportunities - 28th Apr 24
S&P Stock Market Detailed Trend Forecast Into End 2024 - 25th Apr 24
US Presidential Election Year Equity Performance in the Presence of an Inverted Yield Curve- 25th Apr 24
Stock Market "Bullish Buzz" Reaches Highest Level in 53 Years - 25th Apr 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Five Cheap Stocks for an Undervalued Market: KCG, AWP, WLP, MT, CNBKA

Companies / Investing 2012 Mar 12, 2012 - 05:30 AM GMT

By: Money_Morning

Companies

Best Financial Markets Analysis ArticleDon Miller writes: Last week marked the third anniversary of the bear market low, and there is compelling evidence that we still have an undervalued market - meaning investors can find cheap stocks.

Even though the S&P 500 Index has nearly doubled off its lows of March 9, 2009, it is still trading at only about 14.1 times earnings, well below its 15-year average of 20.2.


In fact, earlier this month when the markets hit 52-week highs, that was the "cheapest" stocks have been since 1989,according to Bloomberg News.

The index gained 8.6% in the first two months of this year, its best start since 1987. And that came after a rally that added 24% and about $3.2 trillion in value to shares since October.

But after one of the most volatile years on record, nervous investors can't seem to decide whether the glass is half-full or half-empty.

"What you're seeing is a gigantic exercise in behavioral finance," Brian Barish, president of Cambiar Investors LLC, told Bloomberg. "The ability to scare the hell out of people is much greater than the ability to attract them to equities."

Higher Corporate Earnings Create Cheap Stocks

Meanwhile, the government's easy money policies have combined with productivity gains to push corporate earnings to record heights.
Analysts at Standard & Poor's estimate operating earnings will rise from $96.34 in 2011 to a record $104.82 in 2012.

That would represent a 72% increase in earnings since 2010. By comparison, the stock index has recorded a 21% gain during the same period.

S&P analysts say earnings will climb to another record of $111.73 in 2013. But they project higher corporate earnings will drop the P/E from 14.1 to 12.2.

So what is it that's making stocks relatively cheap compared to higher earnings?

Simply put, investors continue to defy logic by shunning stocks and piling into bonds.

Despite record low interest rates, investment-grade bond funds took in a record $3.3 billion during the week ended Feb. 15 while equity funds had outflows of $1.9 billion, according to data provided to Bloomberg by EPFR Global and Bank of America Corp. (NYSE: BAC).

Meanwhile, traders have been bidding up the prices of options that will protect them against stock losses to the highest in four years, according to Bloomberg.

The flight to safety has driven the S&P 500's earnings yield (earnings divided by index price) to 7.3%, nearly a record high.

With the spread between the earnings yield and risk-free 10-year Treasuries about 5.8%,stocks are now cheaper than they were in 2002 or 2008. In fact, the last time the spread was this lopsided was 1975, when stock prices jumped 32%.

All this suggests that something has to give. Either Treasury prices will have to plunge or stock prices will have to rise - by a lot.

So what's an investor to do?

Buy Cheap Stocks

One key to investing is to buy a business for less than what it is worth. And the best way to do that is to buy companies that are trading below the total of their assets minus their liabilities, or book value.

While no investment approach is foolproof or a guaranteed road to investment success, buying a stock at less than book value is a place to start.

Here are five companies currently trading below their book value and below the S&P 500 P/E of 14.1:

Kiross Gold Corp. (NYSE: KGC): KGC is one of the world's top five gold producers. The company produced 2.61 million ounces of gold last year, a 12% increase over 2010. The company trades at a price-to-book (P/B) of 0.84 and a forward P/E of 10.9. Analysts expect the firm to accelerate its earnings from 24% this year to 42% next year.

Century Bancorp Inc. (Nasdaq: CNBKA): The Massachusetts-based banking firm posted record 2011 profits, including a 6.8% gain in the fourth quarter. Shares trade at a price/book ratio of 0.92, with a dividend yield of 1.8%.

Allied World Assurance Holdings AG (NYSE: AWH): Allied World operates as a specialty insurance and reinsurance company in seven countries including the U.S. It grew revenue last year by 21.4%, carries a P/E of 9.6, a P/B of 0.81 and offers a 1.2% dividend.

Wellpoint Inc. (NYSE: WLP): Wellpoint is a health benefits company in the U.S. The company offers various network-based managed care plans to large and small employer, individual, Medicaid, and senior markets. It has $19.32 billion in cash, an 8.8 P/E, and trades at 0.95 P/B. The company pays a 1.2% dividend.

Arcelor Mittal (NYSE: MT): MT is the largest integrated steel and mining company on the planet. The stock is down 44% in the last 52 weeks. Earnings per share are forecast to grow by 69.2% in 2012 and by 54.5% in 2012. It carries a rock bottom 5.7 P/E and 0.55 P/B. It pays a 3.6% dividend.

Remember, this is not a "Buy" list. It's just a starting point for your own due diligence and research.

After all, 2012 is shaping up to be a good year for equities. Cheap stocks are a great place to start.

Source http://moneymorning.com/2012/03/12/five-cheap-stocks-for-an-undervalued-market-kcg-awp-wlp-mt-cnbka/

Money Morning/The Money Map Report

©2012 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in