ERIC GAILLARD
U.S. stocks slid last month, with the S&P 500 falling 4.7 per cent as investors loaded up on fixed-income securities. Here are 10 stocks struggling despite exceptionally cheap price-to-earnings ratios. When stocks rebound, these stocks may fare best. The companies are ordered by forward earnings multiple, from cheap to cheapest.
10. Humana offers health and supplemental benefit plans. Second-quarter profit increased 21 per cent to $340 million, or $2 a share, as revenue grew 9.5 per cent to $8.7 billion. The operating margin rose from 5.9 per cent to 8.2 per cent. Humana has $8.9 billion of cash and $1.7 billion of debt, equal to a quick ratio of 1.7 and a debt-to-equity ratio of 0.3. During the past three years, Humana has grown revenue 11 per cent annually, on average, and boosted profit 24 per cent a year. Its stock trades at a trailing earnings multiple of 7.1, a forward earnings multiple of 8.6, a book value multiple of 1.3, a sales multiple of 0.3 and a cash flow multiple of 3.6 -- 51 per cent, 31 per cent, 48 per cent, 60 per cent and 59 per cent discounts to peer averages. Of analysts covering Humana, 9, or 43 per cent, advise purchasing its shares, 11 recommend holding and one suggests selling them. A median price target of $55.73 suggests a return of 16 per cent.
9. Goldman Sachs is a global full-service investment bank. Second-quarter profit tumbled 82 per cent to $613 million, or 78 cents a share, as revenue decreased 31 per cent to $10 billion. The operating margin narrowed from 42 per cent to 40 per cent. Goldman Sachs has $258 billion of cash and $540 billion of debt, equal to an elevated debt-to-equity ratio of 7.3. Since 2007, Goldman has increased net income 5.9 per cent a year, though earnings per share fell 2.6 per cent a year. Its stock sells for a trailing earnings multiple of 7.2, a forward earnings multiple of 7.7, a book value multiple of 1, a sales multiple of 1.5 and a cash flow multiple of 2.1 -- 46 per cent, 45 per cent, 35 per cent, 31 per cent and 85 per cent discounts to capital markets industry averages. Of researchers following Goldman, 24, or 86 per cent, rate its stock "buy" and four rate it "hold." None rank it "sell." A median target of $189.79 implies 39 per cent of upside. Deutsche Bank offers a price target of $205.
8. SLM Corp. provides education finance in the U.S. SLM swung to a second-quarter profit of $338 million, or 63 cents a share, from a loss of $123 million, or 31 cents, a year earlier. Revenue gained 13 per cent. The operating margin narrowed from 61 per cent to 57 per cent. SLM Corp. holds $13 billion of cash and $199 billion of debt, equal to an excessive debt-to-equity ratio of 39. During the past three years, SLM's net income has dropped 8.5 per cent a year, on average. Its stock trades at a trailing earnings ratio of 5.4, a forward earnings multiple of 7.7, a book value multiple of 1.1 and a sales multiple of 0.8 -- 58 per cent, 37 per cent, 51 per cent and 43 per cent discounts to consumer finance industry averages. Of analysts evaluating SLM Corp., six, or 60 per cent, rate its stock "buy" and four rate it "hold." None rank it "sell." A median target of $15.50 suggests a potential return of 40 per cent. FBR offers a price target of $19, implying 71 per cent of upside.
7. Coventry Health Care is a managed-health-care company. Its second-quarter profit plummeted 95 per cent to $1 million, or 1 cent per share, as revenue fell 18 per cent to $2.9 billion. The operating margin extended from 2.9 per cent to 9.9 per cent. Coventry has $1.5 billion of cash and $1.6 billion of debt, converting to a quick ratio of 1 and a debt-to-equity ratio of 0.4. Since 2007, Coventry has grown sales 14 per cent annually, on average, as net profit dropped 22 per cent a year. Its stock sells for a trailing earnings multiple of 9.5, a forward earnings multiple of 7.7, a book value multiple of 0.8, a sales multiple of 0.2 and a cash flow multiple of 8.6 -- 35 per cent, 38 per cent, 68 per cent, 63 per cent and 2 per cent discounts to health care peer averages. Of researchers covering Coventry, six, or 32 per cent, advocate purchasing its shares and 13 recommend holding them. A median price target of $25.64 suggests a return of 31 per cent. BMO offers a price target of $33.
6. Ace provides a range of insurance and reinsurance products. Second-quarter profit expanded 27 per cent to $677 million, or $1.98 a share, as revenue increased 6 per cent to $3.8 billion. The operating margin widened from 19 per cent to 23 per cent. Ace has $5 billion of cash and $3.6 billion of debt, equal to a debt-to-equity ratio of 0.2. Since 2007, Ace has grown sales 4.1 per cent a year, on average, increased net income 3.6 per cent a year and boosted earnings per share 3 per cent a year. Its stock trades at a trailing earnings multiple of 6.3, a forward earnings multiple of 7.3, a book value multiple of 0.9, a sales multiple of 1.2 and a cash flow multiple of 4.9 -- 58 per cent, 27 per cent, 80 per cent, 76 per cent and 44 per cent discounts to insurance industry averages. Of analysts covering Ace, 21, or 88 per cent, rate its stock "buy" and three rate it "hold." None rank it "sell." A median target of $65.98 implies 24 per cent of upside. JPMorgan forecasts that the stock will rise 37 per cent to $73.
5. Ford designs and manufactures cars and trucks. Ford's second-quarter net income increased 15 per cent to $2.6 billion, but earnings per share fell 12 per cent to 61 cents, hurt by a higher share count. Revenue gained 31 per cent to $35 billion. The operating margin turned positive. The balance sheet stores $31 billion of cash and $117 billion of debt. Ford is running a shareholders' deficit, but it has decreased 67 per cent since the year-earlier quarter to $3.6 billion. Its stock sells for a trailing earnings multiple of 6.8, a forward earnings multiple of 5.8, a sales multiple of 0.3 and a cash flow multiple of 3.1 -- 63 per cent, 76 per cent, 42 per cent and 10 per cent discounts to auto peer averages. Of researchers following Ford, nine, or 56 per cent, rate its stock "buy", six rate it "hold" and one ranks it "sell." A median target of $15.90 suggests a return of 42 per cent. UBS predicts the stock will advance 51 per cent to $17.
4. SuperValu operates retail food stores in the U.S. under a variety of names, including Shaw's. The company's fiscal first-quarter profit tumbled 41 per cent to $67 million, or 31 cents a share, as revenue declined 9 per cent to $12 billion. The operating margin tightened from 2.9 per cent to 2.8 per cent. SuperValu holds $198 million of cash and $7.4 billion of debt, equal to a low quick ratio of 0.2 and a high debt-to-equity ratio of 2.5. SuperValu's sales have fallen 4.2 per cent a year since 2007. SuperValu's stock trades at a trailing earnings multiple of 6.2, a forward earnings multiple of 5.6, a book value multiple of 0.7, a sales multiple of 0.1 and a cash flow multiple of 1.6 -- 93 per cent, 58 per cent, 71 per cent, 88 per cent and 80 per cent discounts to food and staples retailing industry averages. Of analysts covering SuperValu, one, or 7 per cent, advises purchasing its shares, 12 recommend holding and two suggest selling them. A median target of $12.23 suggests a potential return of 26 per cent.
3. Gannett owns numerous regional and national newspapers, including USA Today, and online news sites. Second-quarter profit more than doubled to $195 million, or 73 cents a share, as revenue declined 1.6 per cent to $1.4 billion. The operating margin rose from 15 per cent to 20 per cent. Gannett has $157 million of cash and $2.6 billion of debt, converting to a quick ratio of 1 and a debt-to-equity ratio of 1.4. Its stock sells for a trailing earnings multiple of 5.8, a forward earnings multiple of 5.1, a book value multiple of 1.5, a sales multiple of 0.5 and a cash flow multiple of 3.2 -- 71 per cent, 79 per cent, 54 per cent, 76 per cent and 77 per cent discounts to media peer averages. Of researchers following Gannett, six, or 86 per cent, rate its stock "buy" and one rates it "hold." None rank it "sell." A median target of $21 implies 74 per cent of upside. Evercore forecasts that the stock will rise 49 per cent to $18.
2. Western Digital designs and sells hard-drives. Fiscal fourth-quarter profit increased 35 per cent to $264 million, or $1.13 a share, as revenue gained 23 per cent to $2.4 billion. The operating margin extended from 9.6 per cent to 13 per cent. Western Digital has $2.7 billion of cash and $400 million of debt, translating to a quick ratio of 2 and a debt-to-equity ratio of 0.1. Since 2007, Western Digital has grown sales 23 per cent annually, on average, and boosted net income 35 per cent a year. Its stock trades at a trailing earnings multiple of 4, a forward earnings multiple of 5.1, a book value multiple of 1.2, a sales multiple of 0.6 and a cash flow multiple of 2.8, 77 per cent, 66 per cent, 70 per cent, 79 per cent and 76 per cent discounts to computers and peripherals industry averages. Of analysts covering Western Digital, 13, or 52 per cent, rate its stock "buy", nine rate it "hold" and three rank it "sell." A median target of $36.21 implies 50 per cent of upside.
1. Micron Technology designs and makes semiconductors. The company swung to a fiscal third-quarter profit of $939 million, or 92 cents a share, from a loss of $301 million, or 37 cents, a year earlier. Revenue more than doubled. The operating margin turned positive. Micron holds $2.3 billion of cash and $2.6 billion of debt, equal to a quick ratio of 1.5 and a debt-to-equity ratio of 0.3. Since 2007, Micron has expanded net income 154 per cent a year. Micron's stock sells for a trailing earnings multiple of 4.7, a forward earnings multiple of 3.7, a book value multiple of 0.9, a sales multiple of 0.9 and a cash flow multiple of 2.8 -- 75 per cent, 68 per cent, 83 per cent, 69 per cent and 79 per cent discounts to semiconductor industry averages. Of researchers following Micron, 17, or 74 per cent, advocate purchasing Micron's shares, five recommend holding and one says to sell them. A median target of $14.06 suggests a potential return of 118 per cent.