Does brand recognition correlate with stock outperformance? In the case of the following five companies, it might. They have outstanding brand power. And several enjoy lead market share in disparate industries, ranging from consumer electronics to Internet search. Each ranks in the top decile of the S&P 500, based on analysts' equity ratings. Below, the stocks are ordered by median predicted upside, from plenty to most.
5. Coca-Cola sells beverages worldwide.
Coke's stock has risen 3.1 per cent a year, on average, since 2008 and 22 per cent in the past 12 months. It currently ranks as analysts' second-favorite Dow stock, receiving "buy" ratings from 80 per cent of analysts in coverage. Stifel Financial offers the highest target on Wall Street, predicting that Coke's stock will advance 16 per cent to $75 (U.S.). JPMorgan, though ranking Coke "overweight", expects a rise to $66. Coke pays a quarterly dividend of 47 cents, equal to a yield of 2.9 per cent and a trailing payout ratio of 33 per cent. The dividend has grown 9.5 per cent, annually, over five years.
Coke's adjusted fourth-quarter earnings increased 7.6 per cent to 72 cents, modestly exceeding analysts' consensus forecast. Its sales climbed 40 per cent past $10-billion, beating consensus by 3.1 per cent. Yet, Coke's gross margin narrowed from 69 per cent to 67 per cent and its operating margin contracted from 25 per cent to 19 per cent. Coke held more than $11-billion of cash reserves at fourth-quarter's end, compared to $23-billion of debt, for a quick ratio of 0.9 and a debt-to-equity ratio of 0.8. Coke's worldwide volume and North America volume grew 6 per cent and 8 per cent, respectively, during the fourth quarter.
4. Google runs a search engine.
Google's stock has gained 7.8 per cent a year, on average, since 2008 and 17 per cent in the past 12 months. It currently ranks as analysts' 20th favorite S&P 500 stock, based on aggregate ratings, and the third-highest tech component. Of equity researchers evaluating the company, 81 per cent advise purchasing its shares. Jefferies is the most bullish forecaster on Wall Street, predicting that Google's stock will climb 30 per cent to $800 in the next 12 months. In contrast, Evercore, ranking Google "equal weight", expects a modest rise to $640. For a tech stock, Google is undervalued.
Google trades at a forward earnings multiple of 15, a book value multiple of 4.2 and a cash flow multiple of 18, 44 per cent, 39 per cent and 23 per cent discounts to Internet software and services peer averages. Its PEG ratio, calculated by dividing the trailing P/E by analysts' terminal growth forecast, of 0.7 reflects a 30 per cent discount to fair value. Google's adjusted fourth-quarter earnings stretched 27 per cent to $8.75, outperforming the consensus estimate by 8.3 per cent. Sales rose 26 per cent to $6.4-billion, a 5.1 per cent beat. The operating margin fell from 37 per cent to 35 per cent. The stock fell 2.4 per cent in reaction to the quarterly report.
3. Apple sells consumer electronics.
Apple's stock has returned 43 per cent a year, on average, since 2008 and 73 per cent in the past 12 months. It currently ranks as analysts' third favorite S&P 500 stock and their second favorite tech stock. Of analysts covering the company, a disproportionate 93 per cent advocate purchasing its stock. Piper Jaffray offers the highest price target on Wall Street, expecting Apple's shares to gain another 37 per cent to $483 in the next 12 months. Rodman & Renshaw, on the other hand, expects a marginal climb to $360, but ranks Apple "market outperform." Apple is historically undervalued.
Despite outstanding performance and top rankings, based on per-share profit, Apple is cheap. Its trailing earnings multiple of 19 represents a 24 per cent discount to its five-year average multiple. Apple costs just 13-times forward earnings, a significant discount to technology peer investments. Its PEG ratio of 0.4 indicates a 60 per cent discount to estimated fair value. Apple's fiscal first-quarter adjusted earnings surged 75 per cent to $6.43, beating consensus by 19 per cent. Its sales, up 71 per cent, outperformed consensus by 9.5 per cent. Apple holds nearly $60-billion of net cash (cash minus debt).
2. Target sells general merchandise, competing with the likes of Wal-Mart.
Target's stock has fallen 0.6 per cent a year, on average, since 2008. It has ascended just 1.5 per cent in the past 12 months, underperforming retail peers. Target currently ranks as researchers' 29th favorite S&P 500 stock and their fourth favorite consumer services stock. Of equity researchers following Target, 81 per cent advise clients to purchase its stock. Deutsche Bank, rating Target's stock "buy", expects it to appreciate 41 per cent to $74. BMO Capital Markets more conservatively predicts a rise to $57. Target yields 1.9 per cent. Its dividend has grown 19 per cent, annually, over a five-year span.
Compared to its multi-line retail peer group, Target's equity is undervalued. It sells for a trailing earnings multiple of 13, a forward earnings multiple of 11 and a cash flow multiple of 7, 36 per cent, 45 per cent and 25 per cent industry discounts. Target's adjusted fiscal fourth-quarter earnings rose 11 per cent to $1.38, missing the consensus estimate by 1.4 per cent. Its sales, up 2.4 per cent, missed consensus by 0.6 per cent. But, a 56 basis point improvement in the operating margin, to 8.6 per cent, was a notable positive. Target held $1.7-billion of cash and nearly $16-billion of debt at the fourth quarter's end.
1. Visa is a credit-card company, along with rivals MasterCard and AmEx.
Visa's stock has dropped 4.3 per cent a year, on average, since 2008 and has fallen 13 per cent in the past 12 months. It currently ranks as equity analysts' 18th favorite S&P 500 stock and their third favorite financial component, based on aggregate ratings. Of researchers following the company, 85 per cent recommend purchasing its shares. Raymond James, which calls Visa's stock a "strong buy", forecasts an advance of 52 per cent to $112. In contrast, Wedbush expects the stock to decline marginally to $72. Visa yields 0.8 per cent and the distribution has grown 20 per cent in the past 12 months.
Visa's stock trades at a forward earnings multiple of 13 and a book value multiple of 2.1, 23 per cent and 75 per cent discounts to peer averages. It's fairly valued based on its cash flow multiple of 14. Visa's fiscal first-quarter adjusted earnings increased 26 per cent to $1.23, exceeding analysts' consensus estimate by 2.2 per cent. Its sales, which grew 14 per cent, outperformed consensus by 0.7 per cent. Visa's quarterly gross margin extended from 63 per cent to 64 per cent and its operating margin expanded from 60 per cent to 61 per cent. Visa held $7.4-billion of cash and $41-million of debt at quarter's end, for a net cash position.