At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.
But in "This Just In," we don't simply tell you what the analysts said. We'll also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our tool for rating stocks and analysts alike. With CAPS, we track the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.
And speaking of the best ...
As the trading week wound down to a close on Friday, good news came in threes, and shareholders of ExxonMobil (NYSE: XOM ) , Quest Diagnostics (NYSE: DGX ) , and Lockheed Martin (NYSE: LMT ) got a reprieve. Viewing each stock's underperformance relative to the S&P 500 as a perverse plus, Standpoint Capital believes that they now have nowhere to go but up.
Of course, lots of stocks underperform. So why does Standpoint choose these three in particular? Mainly, "because the market has run up so sharply in the last seven weeks." What these three stocks have in common is that they tend to have "lower betas ... [so] if the market reverses, the losses on this basket of three names should be less than what we will see in the major indices." So basically, this is a flight to quality, and to safety. An insurance policy, if you will, in case we see a warning sign soon: "Danger: Falling Stock Markets Ahead."
Running each stock's stats through its proprietary valuation system, Standpoint finds both ExxonMobil and Quest Diagnostics to represent almost precisely equal value opportunities, scoring "65.5%" on its model. Lockheed, in contrast, stands head and shoulders above the other two with a score of "71%."
Which in and of itself tells us little, admittedly. It's hard to know precisely what data went into the black box that spat out these numbers. So, let's do a little number-crunching of our own and see what we can come up with?
Crunching the numbers
Starting at the top: ExxonMobil. Selling for 12.8 times earnings and paying out 2.7% in annual dividends, there's no denying the stock looks cheap -- a fact Standpoint notes is part and parcel with the company's exposure to the cyclical commodities sector. Problem is, it's not as cheap as some of the alternatives. Fellow oil majors Chevron (NYSE: CVX ) and ConocoPhillips (NYSE: COP ) sell for cheaper P/Es (roughly 10 in each case). Both pay higher dividends. What's more, in the opinion of most analysts, they're both going to outgrow ExxonMobil in the profits race over the next five years.
Next up, Quest Diagnostics. Like archrival Laboratory Corporation of America (NYSE: LH ) , Quest stands to benefit from a long-term trend of higher "health care spending as a percentage of GDP" generally, and an emphasis on "preventive care" and "diagnostic testing." Standpoint notes that "DGX is in a losing battle with LH," which most folks on Wall Street expect to outgrow Quest. That said, with a 12.4 P/E, 12.1% projected long-term growth, and a modest 0.8% dividend payout, I'm more or less in agreement that Quest is a fair value today.
But Fools, even that value pales in comparison to the gem of an investment Standpoint has found in Lockheed Martin. Not only is it the cheapest stock out of Standpoint's favored three -- Lockheed's 9.1 P/E ratio makes it a good 25% cheaper than either ExxonMobil or Quest -- we also have the most generous dividend payer. At 4.3% per year, Lockheed puts the other companies' payouts to shame. Set next to peer and defense industry rival Boeing (NYSE: BA ) , too, Lockheed compares favorably, offering investors both a smaller P/E ratio and a larger dividend yield.
A few Foolish caveats
Now admittedly, Lockheed has its warts. Large cash infusions to its pension plan have sapped strength from Lockheed's free cash flow of late, with the result that the company's enterprise value-to-free cash flow ratio does not live up to the apparent value reflected in Lockheed's P/E ratio. But at 13 times free cash flow, with long-term growth projected at 8%, and that hefty dividend payout to back it up, I still believe Lockheed is the best value of the bunch, and even ...
... one of the 10 best stocks for your long-term portfolio.