Here are my favortite S&P 500 value picks. Let me know what all of you think.1.) Washigton Mutual (WM)2.) CVS (CVS)3.) Kerr-Mcgee (KMG)4.) Williams Company (WMB)5.) AT&T (T)6.) Calpine (CPN)
I hold WM and T in a mutual fund (Oakmark Select) and they have done well. Nygren believes there is more upside in both (or did in the last Annual Report).This fund has returned 28%+ Average Annual Total Return since inception. He has a value approach with mid to large cap stocks, and usually holds about 20 companies in the potfolio.
The only one from the list that I'm really familiar with is Calpine because I added it to my portfolio about a month ago. It has been beaten down because of its perceived association with Enron. Enron is (was) an energy trading company, Calpine produces electricity. There is no association. What gave me confidence that this was an unfair knockdown in Calpine's price was how quickly management responded to the rumors.Calpine is clearly cheap from a P/E basis. Even with depressed earnings, it is selling for below ten times earnings. I think this is a great play on the economic recovery. When the economy rebounds, electricity demand will increase, particularly in Silicon Valley with the tech firms. If this does occur, I wouldn't be surprised to see a double from today's prices by the end of the year.Good Luck,CashPhlo
Yes, I was thinking along the same lines about Calpine. A large part of their slide in share price was because people were unfairly comparing them to Enron. I also hope for a double this year.
i'll play devil's advocate. i have studied the power industry for decades, and honestly, i have never seen even well run power outfits do much better than 8,9,10,11% return on invested capital. calpine seems similar. with their current credit rating, this company isn't going to place debt at much better than 9%, if that. so what i'm saying is that the only way you make money in a business like that is to hope that there is functional life to your assets beyond your debt repayment period, and in some respects that has been true for power generators and utilities. otherwise, the business consumes all cash earnings generated out to infinity and there never is any free cash flow. in that case why would the business ever sell for more than the replacement value of its assets plus a small time premium? the P/E is just not that meaningful in this type of business because the earnings are there in an accounting sense, but not in an economic sense.yes, it's true that calpine is a wholesaler, and is not burdened with the retail side of the business but it also sells into the wholesale market, which is priced 25-50% lower than retail rates. i don't understand why anyone thinks that deregulation, which in theory ought to lower barriers to entry, and lower wholesale prices over the long run is going to be a good thing for calpine or mirant or duke's economic return. anyway, i just don't see these businesses as great long run investments.short term, calpine might for a great trade, but its balance sheet is deterioratig quickly during a period of falling prices. interest coverage looks tight the next 12-18 months. with falling cash flow and rising interest charges this may be cheap, but it definitely is not safe. the bonds are selling at a pretty good discount to par. it's a highly leveraged situation which means you may make a lot of money ......or you may not. if i was long calpine common i would definitely keep an eye on its secured debt, and if the price on the bonds continues to falter i would bail out.http://www.thestreet.com/markets/detox/10006853.htmlgood luck.tr
I'm thinking of Calpine as a strictly value oriented investment. I'll just wait for the price to come back to normal levels, and then sell. I'm probablly looking at not much more than a year at the most. I have looked at the financials and the underlying business. I know they're surely not the best I have ever seen by far, but energy and utility companies are cyclical, and right now they seem to be at the bottom of their current cycle. I do not think Calpine is a buy-and-forget type of stock. It does have it's share of problems. I'm just waiting for a return to more normal prices.
Of all the companies you list, the only one I'm familiar with is Washington Mutual (WM). This is a great company IMHO and I like them very much. Good income, dividends and growth. I will be buying them in the near future. In addition, I bank with Washington Mutual and am very pleased with their service. Talk about investing in your own back yard huh? :))Ken
Here are my favortite S&P 500 value picks. Let me know what all of you think.5.) AT&T (T)I'd make sure I didn't go in the wrong direction on that one.AT&T is a short.CowDad
I agree that CPN is cheap P/E-wise, but I think there are other problems in addition to the unfounded "perceived associaton with Enron" that CashPhlo mentioned that caused the stock price to tubmle to current levels such as:1. Too much debt: low credit ratings are limiting access to commercial paper and good rates, (see new stock issue below).2. Uncertainty about CA contract, (but at least there's a renegotiated deal now...although I'm not familiar with terms).Also to consider:1. 69 mil additional shares being sold into the market. This would be great if they were putting it to work making more earnings but it will probably just bail out some of their debt and will only reduce EPS and push their P/E up thereby reducing its bargain basement value.2. Also - investors are wary about high debt issues and Enron-itis accusations, (no matter how unfounded). Look at TYC - almost $3 EPS, but trading at only $26.That said, you gotta believe CPN will at least double over next 18 to 24 months if they get their debt in control and make good deals contract-wise.
I've watched ATT for years, not a favorite of mineUni
as you can look back and see, T has recently rebounded to about half its value of Jan 02 when you asked about it.Uni
2.) CVS (CVS)went from $15 to $31.29 today, a nice 108% increase4.) Williams Company (WMB) is still at $25 afer a dip to $2 in 2002.5.) AT&T (T) was at $40 and is at $34.42 today.3.) Kerr-Mcgee (KMG) -- Anadarko Petroleum Corporation (NYSE: APC) acquired Kerr-McGee Corporation (NYSE: KMG) and Western Gas Resources, Inc. (NYSE: WGR) in separate all-cash transactions totaling $21.1 billion, plus the assumption of debt estimated at $2.2 billion in June of 2006.
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