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8 Large Companies Valued Under 10 Times Earnings

Investors have to cope with a lot of moving parts in 2015: Greece, China, Iran, rising interest rates, a strong dollar, slow global growth, weakening emerging markets and on and on. The bull market is also now more than six years old. All this has some investors perhaps wondering if they should return to value stocks rather than chasing the growth stocks that have already risen so much.

24/7 Wall St. has been making regular reviews of sectors and assets classes, and now it is time for a deep review of value stocks. This value stock and value investing review focuses on “cheap stocks” that were valued at roughly 10 times current earnings and future earnings. Investors and traders alike know that not all value stocks are equal. Other factors were generally considered in a guideline as well: a dividend yield of 1% or more, a market cap of at least $2 billion, well over 100,000 shares trading per day on average and a U.S.-based operation, to keep the reviews focused.

There is also another key consideration when evaluating the so-called value stocks. Generally speaking, value stocks have a reason that they are at “cheap” valuations or why their share prices are not higher. They usually are closer to 52-week lows than 52-week highs, they may have all their analysts hating the companies or lowering targets, and they generally have either underperforming management or are in a challenged industry. If they were in perfect shape, they simply would not be on this list.

In an effort to screen out the usual suspects that are value traps, 24/7 Wall St. discounted real estate investment trusts (REITs), business development companies, American depositary shares of foreign operations, master limited partnerships (MLPs), depressed oil and gas stocks and companies that would be obvious losers the moment interest rates rise. In short, these are operating companies, with real assets and real businesses. Banks were not included in this review as we have already featured the last seven big banks trading under book value.

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Investors need to consider all the issues here. These stocks are valued lower for a reason, and many value stocks can take years to recover. And then there is the risk that they may never recover. We have even shown the most recent short interest data along with the days to cover to show another view of caution. These are the eight stocks valued around 10 times earnings.

Micron Technology

One exception here is Micron Technology Inc. (NASDAQ: MU), as it has no dividend. It was included because it has recovered 10% from its 52-week low, it has been thrown around as a buyout candidate and the stock is so widely followed with a $20 billion market cap. Micron is the U.S.-based king of DRAM and is becoming larger in flash memory trends as well. After a massive turnaround and acquisition of Elpida in Japan, Micron’s gain has turned from a major growth and turnaround story into a value stock — meaning that Micron is in a no-man’s land at the current time. When this stock gets back on track is anyone’s guess, but it is valued at roughly six times earnings, even if its revenue recovery has hit headwinds. Micron also now carries over $6 billion in debt, while its cash and short-term and long-term investments is approaching $9 billion.

Micron shares were last seen below $19.00, well below its consensus analyst price target of $29.82. Its 52-week trading range is $17.14 to $36.59. Micron still has a high short interest of 61 million shares, but that is only about 1.5 days to cover and it is far lower than the 100+ million shares short during much of 2014.

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Aflac

This one is currently valued at about 10 times earnings, but whether Aflac Inc. (NYSE: AFL) stays at or under that level may depend on currency exchange rates with the yen. It also has almost a $28 billion market cap. The most recent earnings, hampered by a weak yen and low interest rates, were marred by a drop of 9% in revenues. Still, U.S. revenues were up almost 2% even if U.S. pretax operating earnings were down almost 2%. Management currently sees 4% to 7% in earnings growth in 2015, which may generate income of $6.00 per share, depending partly on share buybacks. Aflac is known for its disability policies here, but it is also heavy into cancer policies and others. Aflac comes with a 2.5% dividend yield.

Shares of Aflac recently traded at $64.20, and it has a consensus analyst price target of $67.38. Aflac’s 52-week trading range is $54.99 to $65.10. It saw its most recent short interest drop off to 6.2 million shares, with 2.4 days to cover.

ALSO READ: 4 Top US Growth Stocks to Buy Now

American Airlines

American Airlines Group Inc. (NASDAQ: AAL) has gone above and beyond its old days of bankruptcy fears. It is one of the cheaper legacy air carriers, despite a $29 billion market cap. Its shares are down almost 30% from the highs, and one benefit to airlines today is that jet fuel costs are boosting earnings with oil at or under $50 per barrel. Airlines also get to pass on whatever costs and fees they can make up, and flights are generally very full. American even has a dividend yield close to 1%. The air carrier trades at about 10 times trailing earnings, but it is valued at only about six times blended 2015 and 2016 earnings.

American Airlines shares were trading at $42.38, its 52-week trading range is $28.10 to $56.20 and it has a consensus price target of $55.43. The short interest for American Airlines increased only slightly to 23.3 million shares with 1.7 days to cover, compared to the previous level of 23.1 million with nearly two days to cover. That short interest peaked at just over 30 million shares earlier in 2015.

Avnet

This one may seem somewhat boring, since it distributes computers, electronics and other technology goods. Avnet Inc. (NYSE: AVT) operates globally as well, though it is officially based in Phoenix. Earnings growth is roughly 5% here, and it is valued at just under 10 times trailing earnings and less than 10 times 2015 and 2016 earnings expectations — with revenue growth expected to be about 2%. Avnet has a dividend yield of about 1.6% and a market cap of about $5.6 billion.

Shares of Avnet were at $41.60, below its consensus analyst price target of $48.00, and in the middle of its 52-week trading range of $35.53 to $47.27. Avnet’s short interest was almost 3.0 million, with 3.2 days to cover.

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Dana

Dana Holding Corp. (NYSE: DAN) is classified in auto parts, and its focus is in driveline, sealing and thermal-management products for vehicle manufacturers around the world. Its market cap is about $3 billion, it trades in the lower part of its 52-week range and its dividend was recently raised to a yield of about 1.3%. The company dates back to 1904 and is based in Ohio. Its valuation is about nine times current and expected earnings, and its revenues have drifted lower, with 2015 expected to be a trough at $6.3 billion or so.

Shares were at $18.55 at last look. While its 52-week trading range is $16.81 to $23.93, its shares have been stuck in a band of $17 to $23 for most of the past two years. Dana’s stock has a consensus price target of $21.60. Dana saw its most recent short interest decrease only slightly to 9.1 million shares, with 4.6 days to cover.


MetLife

Though it was briefly considered a bank holding company due to the recession and bailouts, MetLife Inc. (NYSE: MET) is now just considered an insurance, asset management, annuities and benefits company again. It sports a whopping $62 billion market cap, and shares are marginally lower after the prior week’s earnings report beat expectations. MetLife trades at just over nine times trailing and expected 2015 earnings, but is valued at less than nine times expected 2016 earnings. One problem is that revenue peaked in 2014 and is expected to dip in 2015 and only recover to 2014 levels in 2016. Also acting against the company is the new proposed fiduciary role, potentially creating a conflict of interest in many companies like this. MetLife pays its investors roughly a 2.7% dividend yield, and UBS recently added it to a focus list.

Shares of MetLife were recently at $55.88, it has a consensus price target of $60.73, and its 52-week range is $46.10 to $58.23. MetLife’s short interest was last seen at 16.1 million shares, less than three days to cover.

ALSO READ: 6 Big Stocks With Massive Upside in Analyst Calls

Navient

Formerly known as Sallie Mae, Navient Corp. (NASDAQ: NAVI) provides financial products and services around student and education loans and business services to some 12 million customers. It has a market cap of almost $6 billion and a dividend yield approaching 4%. Navient’s problem is that it has had sliding revenue and is expected to continue to do so. This explains its valuation being about eight times trailing and expected 2015 earnings. The other risk is that the business of loaning to students comes with much more regulation and scrutiny than in prior years.

Navient shares were at $15.65, with a 52-week trading range of $15.49 to $22.71. The consensus price target is $20.11. Navient’s most recent short interest was 10.1 million shares, with about 3.4 days to cover. That was its highest short interest reading in a year.

Trinity Industries

Trinity Industries Inc. (NYSE: TRN) is a true value stock that comes with a growth-value dilemma for investors. It serves the railroad with about 76,000 rail cars to serve the energy, chemicals and construction sector, and it also makes key equipment and infrastructure items for the rail and highway systems. Trinity is also involved in energy equipment and has barge operations. After shares were cut in half before a brief recovery, its market cap is now only about $4.5 billion. Trinity faces declining revenues after a big jump in 2014, and its target industries keep the investing public only willing to value it about seven times trailing and expected earnings.

Shares of Trinity Industries were recently trading at $28.30. The stock has a consensus price target of $37.00 and a 52-week range of $24.13 to $50.77. Trinity’s most recent short interest was 17.3 million shares, or about eight days to cover, down from a short interest of nearly 30 million shares a year ago.

ALSO READ: 5 Analyst Stock Picks From July Called to Double

By Jon C. Ogg


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