Following are five global companies whose products are household names and whose common stock prices are undervalued compared to their peers. Most importantly, all five of these companies are good income producing investments as the shares have a dividend yield of at least 3% per year and offer a capital appreciation opportunity. Everyone looking for stable, income producing investments should definitely consider these five companies.
General Mills (GIS) recently traded around $40 per share and its 52-week trading range is between $34.64 and $41.06 per share. The company has 645 million shares outstanding for a market capitalization of $25.8 billion and pays a quarterly dividend of $0.305 per share for an annual dividend yield of 3%. General Mills is an attractive investment because it is one of the most profitable companies in the processed foods industry with an earnings before interest, tax and depreciation margin of 19.4% or nearly double the industry average of 9.8%. In addition, the company generates a good cash flow and during the first two quarters of its fiscal year ending in May 2012 it had cash from operating activities of $1.15 billion. For the second half of its fiscal year, the company reaffirmed that it would grow sales by double-digits, as well as adjusted diluted earnings per share. Assuming the company meets its conservative goal of earning $2.60 per share in fiscal 2012, this gives a price to earnings ratio of 15.4, lower than the industry's average price to earnings ratio of 18.5. Given the company's profitability and cash flow generation, its shares should command a higher, not lower, price to earnings ratio than the industry. General Mills, at $40 per share, is a good investment with a stable (if not rising) dividend payout.
Kimberly-Clark (KMB) traded around $72 per share at the time of this writing, near the high end of its 52-week trading range of $61.00 to $74.25 per share. This personal and household products producer has 394 million shares outstanding for a market capitalization of $28.4 billion and pays a quarterly dividend of $0.70 per share for an annualized dividend yield of 3.9%. The company has only $5.4 billion of long-term debt as of December 30, 2011, produced $2.3 billion of cash in 2011, and it repurchase 19 million shares for the full 2011 at a total cost of $1.24 billion. On January 24, 2012, Kimberly-Clark announced that it is expecting to repurchase shares worth between $900 million and $1.1 billion in 2012. Also, for 2012, the company expects to grow sales by about 1%, operating profit margins by 3-6%, and to increase its dividend per share by a mid-single digit effective April 2012. Kimberly's price to earnings ratio is 18 which is the industry average. Excluding restructuring charges in pulp and tissue, the company price to earnings for 2011 is 15 and for 2012 it is estimated to be 14 (assuming earnings of $5.10 per share in 2012 which is inline with the company's own guidance). Clearly, Kimberly-Clark is a solid investment with a stable dividend payout (which will rise in April of 2012) and there is a potential for the shares to appreciate in 2012 depending on a variety of factors.
Procter & Gamble (PG) is trading around $63 per share with a 52-week price range between $57.56 to $67.72 per share. The company has 2.7 billion shares outstanding for a market capitalization of $170 billion and pays a quarterly dividend of $0.525 for an annual dividend yield of 3.3%. Despite its large size, Procter & Gamble has been able to grow sales at a rate of 5.1% per year for the past five years. Also, the company has a relatively low price to book value ratio of 2.7 compared to a ratio of 6 for the industry. The company is a strong cash generator and has produced cash from operations of $5.5 billion for the six months ending December 31, 2011 (for the fiscal year ended June 30, 2011 it generated $13.2 billion of cash from operating activities). For fiscal 2012 ending on June 30, 2012, it expects to earn around $4 per share giving a price to earnings ratio of about 16 or less than the industry average of 17.8. Overall, Procter & Gamble offers a conservative valuation with an upside potential, a generous dividend payout and an exposure to growth in emerging and developed markets around the world. My investment recommendation is that Procter & Gamble is a good buy. It is interesting to note that the company has been paying a dividend for 121 consecutive years and has increased its dividend payment for 55 consecutive years.
Avon Products (AVP) trades around $18 per share at the time of this writing and has a 52-week trading range from a low of $16.09 to a high of $31.60 per share. The company has 431 million shares outstanding for a market capitalization of $7.8 billion and pays a quarterly dividend of $0.23 per share for an annualized dividend yield of 5.1%. The reason Avon is selling near the fifty two week low is that the company withdrew its profit estimate for 2011 on October 27, 2011 and later separated the role of CEO and Chairman. In addition the company is being investigated by the SEC for a security and foreign corrupt practices act violations. This negative news are already incorporated in the current stock price. Currently, Avon has a price to earnings ratio of about 11 while the industry's price to earnings ratio is near 18. Given this price level together with a strong dividend yield of 5.1% there is little possibility of a further downturn in Avon's common stock price. Once the company resolves its violations, which while serious are not unique to Avon, and finds a new CEO, I believe Avon will have a strong finish to 2012.
Nokia (NOK) is trading around $5 per share at the time of this writing and has a 52-week trading range between $4.46 and $11.75 per share. The company has 3.8 billion shares outstanding for a market capitalization of $19 billion and is expected to pay a dividend of about $0.25 per share (subject to exchange rate fluctuations and board approval) in April or May of 2012 for an annual dividend yield of 5%. Nokia is trading at historically low levels and at current prices is a good investment opportunity as the company stock trades at 1.2 times book value and 2.6 times tangible book value while the industry average is 3.2 and 4.1, respectively. Nokia had a net loss of $0.41 per share in 2011 but the company has made reorganization and is also a stable cash generator ($1.5 billion of cash flow from operation in 2011). Its new smart phone (Lumia) is off to a good start and an upturn in network infrastructure upgrading by communications companies bodes well for Nokia Siemens Networks (its networking joint venture with Siemens - SI). It is interesting to note that a report by a major investment bank identified Nokia in March of 2011 as a company whose common stock had hit a bottom at around $8 per share. At current price level, I think it finally has hit it.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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