4 Overlooked Stocks for 2011

In investing, the crowd tends to follow the latest shiny object. A stunning out-of-context statistic or a sexy one-sentence story often trumps substance.

Today, I'm going to pick apart three such stocks and give you four overlooked stocks that are better. Let's get started!

Stock 1: The risky bank

The stock the crowd falls for: Synovus Financial (NYSE: SNV  )
A lot of investors are attracted to Synovus because of the seemingly cheap numbers -- led by a stock price well under $5 and a price-to-book ratio of just 0.86. Add in a Tier 1 capital ratio of 13.1% and this initially looks like a good risk.

But dig deeper and it's not so pretty. A whopping 5.9% of its loans are in trouble (even Citigroup's only at 3.4%), and it's not sufficiently writing those loans down, which means that its losses could get even worse.

The stock that's better: BB&T (NYSE: BBT  )
For a better regional mid-Atlantic bank, look to BB&T. It's pricier, but with that added price, you cut Synovus' bad loan percentage by more than half and get a bank that's actually turning a profit.

Stock 2: The American carmaker

The stock the crowd falls for: Tesla (Nasdaq: TSLA  )
Since going public this summer, Tesla's up 80%. But right now, Tesla is more idea (the promise of an electric car revolution) than reality (its $2.8 billion market cap is supported by just $99 million in sales). Tesla faces the challenges of extending its product line and growing into a more mainstream carmaker.

The stock that's better: Both Ford (NYSE: F  ) and GM (NYSE: GM  )
Unlike Tesla's shiny promise of the future, many investors view Ford and GM through the rearview mirror. They both had some ugly years behind them, but Ford is well into its turnaround and GM is in much better share after its bankruptcy and subsequent IPO.

Behind its renewed focus on quality, Ford's pumped out enough profitability to support a P/E ratio under 10. All with no government help.

On the other hand, the investment thesis for GM is all about government help. Thanks to the government, GM has emerged with a relatively clean balance sheet, a better cost structure, and serious tax breaks. Given those advantages, GM can focus on its streamlined offerings and even competing with Tesla with its just-launched Chevy Volt.

At current prices, the old guard of Ford and GM offer a better risk-reward than Tesla. Don't let daydreams of the future and nightmares from the past cloud the present.

Stock 3: The risky bank -- global edition

The stock the crowd falls for: Banco Santander (NYSE: STD  )
Here's the pitch: A quality Spanish bank trades down because of overblown fears that Spain is going to be the next Greece or Ireland.

But here's the thing. It's not trading down all that much.

The stock that's better: PNC (NYSE: PNC  )
Yes, even with a global view, I prefer a large but relatively obscure American bank. The case is just too compelling to ignore.

If you're intrigued by Banco Santander, PNC is a better choice. On the quality side, it has a similar percentage of bad loans, and on the price side, it's trading for similar multiples on tangible book value and earnings. So, basically, you're getting no discount for Santander over a comparable American bank despite the large unknowns in the Spanish economy.

I'm all for taking a shot on a risky foreign bank, but the price has to be right. For Banco Santander, it just isn't.

Even with a near-zero dividend yield (0.7%), I'd much rather buy PNC at today's prices. In fact, once the government allows the larger U.S.-based banks to boost their dividends (which may be soon), don't be surprised to see the market suddenly care about banks like PNC.

Rather than the three overrated stocks above (Synovus, Tesla, and Banco Santander), I've made the case for four stocks (BB&T, Ford, GM, and PNC) that I believe are better buys. If you've got room for one more, click here for our brand new free report, "The Motley Fool's Top Stock for 2011."

Anand Chokkavelu owns shares of Citigroup. General Motors is a Motley Fool Inside Value pick. Ford Motor is a Motley Fool Stock Advisor choice. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (25) | Recommend This Article (101)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 17, 2010, at 5:15 PM, weiwentg wrote:

    I think that Wells is a superior bet to both PNC and BBT.

  • Report this Comment On December 17, 2010, at 6:18 PM, JudasTouch wrote:

    Great format on this article (popular stock/better stock).

  • Report this Comment On December 17, 2010, at 8:22 PM, WakeJKirk wrote:

    Agreed, good article and format. MORE ARTICLES LIKE THIS PLEASE!

  • Report this Comment On December 17, 2010, at 9:02 PM, bebop111 wrote:

    Excellent piece--the comparisons are very educational!

  • Report this Comment On December 17, 2010, at 9:41 PM, thenatural24 wrote:

    Dont forget to add 4% to that PNC yield for Santander.

    I love the article format. But honestly, Santander yields 4.7% with a lower valuation. I get it - Spain deserves the discount. But add a lower valuation plus a whopping 4% more in yield, not even close. Not to mention that STD is in great shape and is a bargain because of Spain, not because it has financial issues.

  • Report this Comment On December 18, 2010, at 9:22 AM, energysystems wrote:

    STD is a buy for me. Big yield, the best emerging market exposure, and right now it's beat up because of where it's headquartered. I'm buying on dips when it breaks under $10.

  • Report this Comment On December 20, 2010, at 3:40 PM, OrangeIcon wrote:

    The article says "don't be surprised to see the market suddenly care about banks like PNC." But that seems like more of a speculative mentality to want the market to "suddenly" care. I think investors would be better served with Banco Santander because much of the risk that is currently priced into the stock has nothing to do with the bank itself only the country where it is headquartered. If Santander's price stays deflated for a lengthened period because of market jitters over Spain this is an opportunity for investors to load up on shares especially those that reinvest Santander's dividend currently yielding 4.70%. PNC's dividend is currently just 0.68% and it was reduced to that level by an 85% cut in early 2009. Santander has not reduced it's dividend during the recession. It looks as though it did slightly but that is explained by the stock dividends it has recently issued. (New stock issued to shareholders caused them to pay less dividends per share because of more shares.)

  • Report this Comment On December 20, 2010, at 4:32 PM, langco1 wrote:

    tesla and ford are nice shorts.as for the disgrace gm its new shares are mostly held by foreigners who have not learned their lesson yet and insiders who cant sell.once the status of gm's stockholders changes where they can sell this company will be closed for good in two months...

  • Report this Comment On December 20, 2010, at 4:59 PM, Jbay76 wrote:

    Is it me, but the article's title is 4 overlooked stocks for 2011 but only 3 were listed

  • Report this Comment On December 20, 2010, at 11:44 PM, Varchild2008 wrote:

    4 are listed because one of them listed 2.

    (F) and (GM)

    Double listing.

  • Report this Comment On December 21, 2010, at 11:18 AM, mikecart1 wrote:

    The top 3 banks by 2020: BAC, C, PNC. You heard it here first!

  • Report this Comment On December 21, 2010, at 10:45 PM, TMFBomb wrote:

    @Jbay76 and Varchild2008,

    Yup, what Varchild2008 said.

    @mikecart1,

    Quite possible in the larger bank space.

    Fool on,

    Anand

  • Report this Comment On December 22, 2010, at 12:43 AM, Glycomix wrote:

    Sorry about that post. Here's my point. Are banks too good a deal to miss now?

    Buffet recently invested in New York/Mellon (BK). It has little debt for a bank (0.69) and an impressive Free-cash--flow of 10.40

    Mary Buffet writes that in the past Warren didn't typically invest in banks because they could too easily hide their losses.

    What changed?

    Worrying news: Fannie and Freddie are making 90% of new loan according to Bloomberg TV on 12/20/2010.

    By law Fannie and Freddie are restricted to guaranteeing welfare loans, either minorities, those making $21,000 or lessor those making under $14,000 or less.

    http://www.law.cornell.edu/uscode/html/uscode12/usc_sec_12_0...... ¶ 1.

    http://www.huduser.org/portal/datasets/GSE/gse2007.pdf See Table 2 note 1.

  • Report this Comment On December 22, 2010, at 10:54 AM, multi007 wrote:

    @ mikecart1 - well, im been on the BAC and C bandwagon for 2 years so you would be 2nd. lol :)

  • Report this Comment On December 23, 2010, at 12:43 PM, Zade wrote:

    I want to second the remarks for more articles like this please. Very informative.

  • Report this Comment On December 23, 2010, at 2:16 PM, ddmac380 wrote:

    A suggestion to SA that may be worthwhile. Take a look at 2 Canadian Banks that have been busy buying US regional banks, namely TD and RBC. TD now has more branches in the US than in Canada.

  • Report this Comment On December 23, 2010, at 2:21 PM, CCAcowboy wrote:

    I just can't get excited about F. Its total debt is at $133B. They have $23B in cash. Market cap of $55B. GM has about the same market cap, much less debt, and more cash. However, they have a -98% quarterly earnings growth! i doubt that the Volt will come anywhere close to putting GM in positive earnings growth. Tesla may be the darling, but they don't look like they are anywhere close to profitability. I won't be putting any of my money in any of the three.

  • Report this Comment On December 23, 2010, at 3:18 PM, Trashman0430 wrote:

    I have owned 1400 shares of STD for some time now. Up over 30%. Seems the future is questionable but if 2011 lives up to predictions I think the stock will continue to do well. As for GM it is one of those stocks I am staying away from due to principal. I will never buy a Government Moters vehicle again and never by their stock. Great article Great forum.

  • Report this Comment On December 23, 2010, at 3:42 PM, stones1962 wrote:

    You forgot regional Bank- United Bankshares-symbol UBSI. It has been a good preforming bank for many many years 5**** Star

  • Report this Comment On December 23, 2010, at 4:46 PM, flashfly wrote:

    If you do some additional homework, you're going to discover that Ford did, in fact, borrow $7 Billion from the government. They borrowed from the Federal Reserve in secrecy, and the press didn't get hold of it. It was just revealed in the details of the Fed's laundry a couple of weeks ago.

  • Report this Comment On December 24, 2010, at 4:44 AM, jorgebertran wrote:

    Regarding Santander, usual comment by an USA based analist that assumes Santander is a Spanish Bank, wrong: is an international bank with operations all over the world. Exposure to Spain is less than 40%. Its run by its owner, Mr Botin. Look at the financial ratios, its the most profitable bank in the world, with an increible ROC.

  • Report this Comment On December 24, 2010, at 10:56 AM, WhiteHatBobby wrote:

    Trashman, Obama seized GM and Chrysler as payback for giving to Mitt Romney (saw proof) and rewarded Ford with Mr. Mulally being on his Export Council, and replacing trucks with Chinese cars.

    Santander is starting to buy its way into the US market, and international broadcasts of F1 will keep the "Scuderia Ferrari Santander" name frequent as its name will be posted to the world.

  • Report this Comment On December 24, 2010, at 1:04 PM, artr4good wrote:

    Mr. trashman won't buy a GM vehicle ever again! That's the feeling of a lot of "americans". Why buy an american built automobile when we can show how sophisticated we are by putting an american out of work. Since 1967 when the US government began building cars, they have, until late, become progressively uglier,and loaded with unnecessary equipment, and more government overreach. Engineers have been pressed to cater to social whims, government mandates of unlimited scale. Our elected officals in Washington are directly responsible for domestic automobile company troubles, with a slightly smaller role of the UAW. Regardless, General Motors, and Ford build the best automobiles. My son owned a Toyota and a Honda, both were junk, but if this is what you're after, be my guest! When you are in trouble, you go to the one who put you there and ask for help to get you out of it. Government bailout!

  • Report this Comment On December 26, 2010, at 11:42 PM, majac3356 wrote:

    the man who sold me my new f150 said they'd just picked up two fleets sales moving from gm because of the bailout... right or wrong, it'll cost them in the long run!

  • Report this Comment On December 30, 2010, at 4:15 PM, fuzzylou wrote:

    Great article! Thanks for pointing out that is investing is not about "following the crowd."

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