3 Dirt Cheap Blue-Chip Stocks You Should Consider Owning Right Now
StreetAuthority | Apr 04, 2012 06:30AM ET
It's noteworthy that the S&P 500 has risen 28% since Oct. 3, 2011, working out to be a nearly 60% annualized gain. What's even more notable is that almost all of the upside (outside of Apple (Nasdaq: CLF )
It's "back to basics" for this mining firm, which went on a recent acquisition spree that doubled sales in 2010 (to $4.7 billion) and boosted them another 45% in 2011 (to $6.8 billion). The broadened sales base (along with rising commodity prices) helped boost free cash flow from $37 million in 2009 to a whopping $1.3 billion in 2011.
But investors began to overlook this on fears of a rising debt load that now stands at $3.7 billion. Shares have fallen from $100 last summer to a recent $70. This helps explain why management recently met with analysts to announce a new strategy: Forget about more big acquisitions. Instead, look for rising dividends. Shares yield roughly 3.6% right now (after a nice recent boost), and could rise much higher, as the payout ratio now stands at just 27%.
Moreover, management aims to use the prodigious free cash flow to steadily pay down debt. The de-leveraging process should help boost the sagging P/E ratio as investors begin to value the company's earnings more,. Right now, the stock trades for less than eight times projected 2012 profits (of $9.50 a share) and around six times projected 2013 profits (of $11.50 a share). That's among the lowest forward P/E ratios in the S&P 500.
Risks to Consider: Each of these companies will need at least a slowly improving economy to hit their targets. This appears to be happening, though the economy slipped back last summer after showing similar signs of growth in the early spring.
Action to Take --> The low P/E ratios tell you these stocks are out of favor. Yet they will really start to pop up on investors' radars if and when sentiment shifts into a less bullish mode and value stocks move into focus. Any of these three stocks are good buys in anticipation of that happening.
by David Sterman
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