Fortune recently listed 40 of the best stocks on which a person can retire. They subdivide the list into 5 categories: growth and income, bargain growth, deep value, small wonders, and foreign value. As I am on the road to becoming a value investor, the “deep value” stocks are what interested me the most. So what type of stocks does Fortune consider to be deep value?
First is Applied Industrial Tech (AIT), a maker of bearings and transmission components that is a “cash-generating machine.” Second is Carlisle Cos. (CSL), a maker of construction materials, roofing and tires that “has weathered the housing crisis and should post double-digit profit increases for the next few years.”
Third is Cascade (CAE), a parts maker for forklifts and other industrial trucks. Fourth is National Presto Industries (NPK), maker of stuff from diapers to ammunition and appliances. Fifth is Pfizer (PFE), the huge pharma company.
Sixth is Regal Beloit (RBC), maker of energy-efficient motors. Seventh is UST (UST), which does chewing tobacco like Skoal and Copenhagen. And last is VF Corp. (VFC), owner of clothing brands like North Face, Wrangler, and Vans.
All these stocks have current ratios of 2.1 or higher, meaning that they all have very low debt and will most likely be persevere through the current credit crunch and economic downturn. Also, they have very low P/E ratios: all or 13 or below, except for UST which has a P/E of 16.
I myself owned VFC during 2007 making a decent short-term profit. The fact that its mentioned as a value stock makes me want to go back and look at it again. I’ve also been eyeing Phizer for 6 weeks. I know that some of its drug lines are about to expire, but still, the stock’s decline and super-low P/E ratio for such a huge company boggles my mind.
Bruce Berkowitz has lately been mentioning healthcare and pharmaceuticals as good value picks. I agree that this is a good area to be in at the moment as there seem to be an abundance of unliked stocks in this sector, but it would be prudent to choose four or five different stocks in order to diversify against risk.
“super-low P/E for such a huge company”? that is a strange statement; it is customary for very large companies to have lower valuation ratios, for the very simple reason that sustained large rates of growth are much harder.
You are correct. However, the P/E that Fortune calculated for Pfizer is one that is historically the lowest by all that I can tell.