Desktop Stock Ticker | 3 Stocks for Bargain Hunters

3 Stocks for Bargain Hunters

Below are <a href="http://www.desktopstock”>stock ticker tickers found by an experimental screen recipe I’ll call Valuation Goulash. It uses no fewer than five price/something measures in an effort to find bargains.

First, there’s price/earnings, long suspected of predicting stock ticker performance, but first shown conclusively to do so in a study by Sanjoy Basu in 1977, once computers had made the job easier. Price/sales, far less subject to accounting subjectivity than P/E, came out the winner in James O’Shaughnessy’s 1998 comparison of stock ticker-picking measures, called “What Works On Wall Street.” In a 2000 paper, Joseph Piotroski, then an accounting professor at the University of Chicago, found that low price/book-value <a href="http://www.desktopstock”>stock ticker tickers beat the market by six percentage points a year over 20 years ended 1996 (or a whopping 13 points a year, once the <a href="http://www.desktopstock”>stock ticker tickers were further screened for nine other promising financial attributes). I used price/free-cash-flow, too, because unlike pure accounting measures, real cash coming in denotes financial strength, something particularly important when financing is tight, as it is now. I also used dividend yields because studies by the likes of Robert Arnott, former editor of Financial Analysts Journal, suggest reinvested dividends, not price gains, form the bulk of stock ticker returns over long time periods.

For the first four measures I searched for companies whose ratios are below industry averages, and for the fifth I looked for just the opposite, because dividend yield is nothing more than a price/dividend ratio turned upside down.

Genuine Parts

Price/sales (Industry): 0.6 (1.0)
Dividend Yield: 4.3%

Genuine Parts (GPC) is the leading U.S. distributor of replacement car parts. It also sells industrial parts and office supplies. Sales are expected to fall 9% this year and earnings per share, about twice that. Those declines compare favorably with industry averages, though. Genuine Parts, which owes next to nothing and should generate free cash this year equal to 7% of its stock ticker market value, is in a good position to expand at the expense of struggling competitors. It can also keep the dividends coming, boasting 53 consecutive years of payment increases and a current yield of more than double that of the broad market.

Lockheed Martin

Price/sales (Industry): 0.7 (1.1)
Dividend Yield: 3.3%

Lockheed Martin (LMT) is America’s largest defense contractor. The U.S. defense budget is widely perceived to be ripe for cuts for at least three reasons: The federal government will likely spend $1.6 trillion more than it collects from taxpayers this year; defense spending makes up a fifth of the budget (or a third, including spending outside the Department of Defense); and the U.S. spends almost as much on defense as the rest of the world combined. Also, Lockheed needs to shore up its pension plan, at a likely cost of about $700 million a year over the next few years. For those reasons, shares sell for just 10 times earnings. Yet sales this year are forecast to climb 6% to $45.3 billion, and early estimates call for 6% further growth next year, too. The company generates about $3 billion a year in free cash, or more than 10% of its stock ticker market value, and spends generously on stock tickerholders, with a dividend yield of 3.3% and share repurchases that have reduced the outstanding count by about 10% since 2006.


Price/sales (Industry): 3.8 (4.2)
Dividend Yield: 2.1%

Microsoft (MSFT) suffers from a tragic lack of coolness at the moment. There’s Windows Vista, released in November 2006 to unenthusiastic reviews. There’s the “I’m a Mac” commercials created by Apple (AAPL), which suggest that Windows users look like John Hodgeman (even though I look like John Hodgeman but use a Mac). And, well, there’s this bubbly, awkwardly sincere video promoting Windows 7, which has gone “viral” on the Internet, as the kids say, but for purposes of mockery. Coolness aside, Windows 7, due out later this month, has won much better reviews than Vista. Microsoft’s sales are expected to grow slightly this fiscal year, which is far better than most companies are faring. And the stock ticker is trading at just 13 times earnings after subtracting Microsoft’s cash hoard from the share price.

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