Stock of the Week
NYSE Symbol: HES
Price as of 9/16: $61.61
The major averages bounced dramatically this week following heavy selling the last several weeks. The European crisis continues to hang over our markets as worries persist of an economic slowdown. However, as bad things seem to be, a lot of the news coming from corporate America isn't so bad. This week engine maker, Cummins not only reiterated guidance, but actually raised guidance causing that stock to pop. The transportation index is showing some life after getting pummeled in August. In the healthcare space, Aetna raised guidance the other day causing the stock to bounce. One analyst on Friday made the healthcare space his top sector. Plenty of stocks are performing well even though this remains a tough market. We'll highlight a few below.
In the tech space, the chip stocks are performing great as if there's a new bull market starting in that sector. In the chip space, Intel is a stock to watch, rallying every day this week. The stock sports a 3.8% yield after raising their dividend twice in the last year. Even with the run up, the stock still trades for less than 10 times earnings, 2 times sales, and 2 times book value. They just raised $5 billion this week for stock repurchases by taking advantage of the historic low interest rates. Similarly, Texas Instruments hiked their dividend this week, improving their yield to 2.8%.
Insider buying among corporate executives remains strong which is a very bullish sign. Last month we highlighted the recent spike in insider buying. Hopefully these purchases bode well for third quarter earnings coming next month. The most impressive purchase comes from Hess. The CEO of Hess bought $10 million of his own stock this week. The stock ran up, but still looks good trading for less than 10 times earnings, 1.11 times book value of $55.20 a share, and less than 1 times sales. The stock has a modest dividend yield of less than one percent. This large purchase could provide a floor under the stock and create good upside potential if the economy or the markets improve.
The Chairman of Ford also bought his own stock this week. Ford is a cyclical stock that looks like a value play as long as the economy doesn't slip into a recession. Currently, the stock trades for just 6 times earnings. The stock also trades for less than one times sales, but provides no dividend.
Defensive stocks are all the rage thanks to their limited correlation to the economy and their hefty dividends yields. Goldman Sachs this week lowered S&P 500 earnings estimates and told clients to shift more money toward defensive issues. One of the best defensive sectors is tobacco. Philip Morris made news this week by hiking their dividend an impressive 20%. Philip Morris currently trades for 14 times earnings and 13 times next years' earnings and yet it is only growing sales by 3% and earnings by 8%. The only stocks trading for higher PEs are growth stocks increasing sales and earnings by factors of 30 to 40%.
A big disconnect between growth and defensive plays.