Tuesday, November 24, 2009

Three Undervalued Stocks (AJG), (WMT), (T)

Here are three undervalued stocks based mainly on valuation ratios and future growth. If you would like to receive email notifications of future blog posts subscribe to stocklook's group through the Google Groups Icon.

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Arthur J. Gallaher (AJG)

Current price

22.76

52 week range

14.82-6.02

Market Cap

2.3 billion

P/E

17.8

P/B

2.6

P/S

1.3


5 year average

P/E

35.8

P/B

3.5

P/S

1.8

Target price

32.38

Return

42.26%

If you add in a 5% dividend yield for 5 years your return increases to 67.26%

Overview

More than two thirds of revenue at Arthur J. Gallagher & Co. comes from insurance brokerage. Gallagher advises corporate and institutional clients on managing risk and recommends insurance products from third-party providers. Through its risk management business, Gallagher processes claims for its clients and provides related services. The financial services arm invests the firm's extra cash, largely in tax-advantaged ventures.

Notes

On a recent blog post, I compared AJG to another insurance company MMC and found on a relative valuation AJG was highly undervalued. They had sustained economic down turn and posted strong 10 year revenue growth vs. this other insurance company but this performance has not been reflected in AJG's stock price. AJG is a four star stock according to Morningstar with a fair value estimate of $32. To read more about AJG vs. MMC view my recent blog http://stocklook.blogspot.com/2009/11/insurance-company-stocks.html


 

Wal-Mart Stores Inc (WMT)

Current price

54.68

52 week range

46.25-9.23

Market Cap

212B

P/E

16.1

P/B

3.1

P/S

0.5

Beta

0.2

5 year average

P/E

17.9

P/B

3.7

P/S

0.6

Target price 5yr

83.30

Return

52.34%

Notes

Just because my fair value estimate is 83.30 does not mean WMT will ever reach that. For my calculation I used 2-4% growth over 5 years. Some things I like about WMT, its becoming popular among consumers for staple and discretionary products. Such as tooth paste and flat screen TVs. WMT has done a good job providing cheap discount products to its customers through the economic down turn and will keep the majority of these consumers long term.


 

AT&T, Inc (T)

Current price

26.78

52 week range

21.44 -30.65

Market Cap

162.6

P/E

12.9

P/B

1.5

P/S

1.3

Beta

0.57

5 year average

P/E

17.6

P/B

1.9

P/S

1.9

Target price 5y

35.03

Return

30.82%

If you add in a 5% dividend yield for five years your total return increases to 55.92%

Notes

For the fair value estimate of T I used 6.5% growth for 5 years. ATT has had amazing 10 year growth due to the explosion of cell phone use and has positioned itself on the global market for growth. Management anticipates growth in their business services segment and improved efficiency to free up cash flow heading out of the recession.


 


 

Please carefully consider all investment variables carefully before making an investment decision including the risk and do your own research.

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