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Just because a stock is cheap doesn't mean it's attractive to value investors ... but it can certainly help. Today, Motley Fool Inside Value advisor Joe Magyer shares a company that is a solid buy, one that's worth watching, and one to get rid of as soon as humanly possible.

One to buy
When Joe recommended Procter & Gamble (NYSE: PG  ) in Income Investor two years ago, he described the consumer-brand behemoth as "a blue chip with a mile-wide moat, a 3% yield, and nearly 33% upside." Since then, the venerable company has lagged the market by more than 45 percentage points. That's only added to Joe's interest.

"They make half the things in your medicine cabinet," he says. "You're going to shave every day, people use diapers every day, they use toilet paper every day. There's no getting around that. P&G focuses on premium-priced brands for everyday needs."

Shares have fallen of late on fears of rising input costs -- let others worry about such short-term concerns, scoffs Joe -- and because the company has become more aggressive on cutting prices. Joe doesn't love the pricing move, but understands the need to maintain market share and brand loyalty in a down economy. "P&G can always return to price increases later, but for right now, they need to focus on keeping those customers locked into their brands."

One to watch
Speaking of price increases, such pricing power is one of the joys of being a member of an industry duopoly. Automatic Data Processing (Nasdaq: ADP  ) is the country's largest payroll processor, not far ahead of rival Paychex (Nasdaq: PAYX  ) , and leaps and bounds beyond any other player. Joe owns shares of Paychex and likes the company, but he's singling out ADP for its two-edged hedge on inflation.

First, the company provides huge cost savings on its payroll processing to businesses. Since the costs to switch are enormous, it can also muscle through price increases above the rate of inflation. Second, ADP earns interest on the funds it holds, from the time its clients deposit the money until ADP ships it out in the form of paychecks.

"I really like the business model of both of these companies, but they're a bit rich for me at the moment," says Joe. "I own both, but I'm not adding right now."

One to sell
Listen to Joe discuss the outlook for Nokia (NYSE: NOK  ) , and you get the sense he'd rather chew on his iPhone than buy shares of this one-time market leader.

"Apple (Nasdaq: AAPL  ) and Google (Nasdaq: GOOG  ) are absolutely eating Nokia's lunch on smartphones," says Joe. "The one thing it had in its favor was that it has its own operating system, which was a differentiator. It was a dinosaur, but it was a differentiator."

So the CEO, who happens to have joined the company from Microsoft (Nasdaq: MSFT  ) , made what Joe considers to be an extremely unappealing decision. Nokia outsourced its operating system to Microsoft, a company with a terrible track record on mobile, and whose system, despite decent reviews, lags far behind Google and Apple on both quality and popularity.

"They've turned themselves into a box-maker," says Joe. "And when the CEO tells all his employees that their situation is like a man standing on a burning oil platform in the middle of the North Sea ... well, I don't see a lot of promise in that business. He was right -- either they stay on the platform (with their old operating system) and face sure death, or they plunge in (with Microsoft) and face likely death. Not a company I want to own."

If nothing else, though, it's worth watching for potential shorting -- or at least entertainment -- purposes. You too can watch these companies with the mere flick of a mouse -- click one of the links below to build your watchlist, new and free from the Fool, to get all the daily numbers and news about the businesses that matter to you. Sign up now and get instant access to "6 Stocks to Watch from David and Tom Gardner," a free report on a handful of companies the Fool's co-founding brothers think you should be watching. The service and the report are free when you click any of the links below:

Google, Microsoft, and Paychex are Motley Fool Inside Value picks. Google is a Motley Fool Rule Breakers selection. Apple is a Motley Fool Stock Advisor recommendation. Automatic Data Processing and Procter & Gamble are Motley Fool Income Investor picks. The Fool has written puts on Apple. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Apple, Google, Microsoft, and Paychex.

Roger Friedman owns none of the companies mentioned. 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 (8) | Recommend This Article (50)

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 March 08, 2011, at 3:42 PM, 1984macman wrote:

    Actually, if one takes the longer term point of view, the decision to go with MS rather than Google makes sense. Like Apple and HP, MS has an operating systems across the board.

  • Report this Comment On March 08, 2011, at 5:58 PM, dlchase24 wrote:

    I agree with 1984macman, while NOK doesn't look spectacular from a short term view, if you take a long view there is a great opportunity. Symbian's big criticism, at least in the US, has been it's UI, while few have argued against the hardware. Now Nokia can focus on the hardware while Microsoft takes care of the UI.

    If you really listen to Elop though, his approach isn't about phones, but ecosystem. He's looking for revenue from services on the phone in partnership with Microsoft. Ovi never stood a chance against Google or Apple, and a major change was required. They lose differentiation in the smartphone market, but they are probably better situated to gain some ground through service integration.

  • Report this Comment On March 08, 2011, at 7:07 PM, TMFBreakerRob wrote:

    Wow. I'll go with Roger here. If I owned any NOK, it'd be an immediate sell. They're just destroying wealth right now....and the statement "if you take a long view there is a great opportunity" has value only if they take the right steps instead of the wrong ones.

    Could they turn around? Oh sure, but they're moving in the wrong direction fast and there are plenty of great companies out there posting great results. Why stay with a crumbling company with those alternatives?

  • Report this Comment On March 09, 2011, at 5:55 AM, wax wrote:


    The stock is getting hammered compared to the rest of the market simply because it does make most of the stuff in my medicine cabinet. In other words, it is simply to big and to mature.

    Year over year earnings growth of 2% is simply not going to cut it when it comes to price appreciation.

    Just divide the earnings growth by the PE and you find out real quick, the price of this stock is not going anywhere anytime soon.


  • Report this Comment On March 09, 2011, at 11:34 AM, mikecart1 wrote:

    I think the author has this confused:

    One to Buy: Nokia = it is near all-time lows of the last decade and has just teamed up with the Michael Jordan of tech

    One to Sell: PG = because it has underperformed means it will continue to underperform. there is no growth in PG as there is no growth in JNJ or Kraft

    One to Watch: SRZ = because you gotta ask yourself, do you feel lucky? well do ya.... puNK?

  • Report this Comment On March 09, 2011, at 2:08 PM, racchole wrote:

    I think Mikecart1 is confused. Nokia = all-time low = will keep reaching all-time lows.

    PG has underperformed as of late = will pick up the slack and continue to be a market leader for years to come. Value, not growth.

    SRZ = good investment if the consumers are willing to splurge thousands of dollars on a living environment. Dependent on money in people's pockets. Gambling at best.

  • Report this Comment On March 09, 2011, at 6:47 PM, techy46 wrote:

    Roger, I say your wrong but time will tell. For some reason, it usually takes longer to get something right when you're also doing many other things. I say, this has been the case with both Microsoft and Nokia. There's certainly nothing magic about a touch screen mobile phone and the resources these two companies have is enormous. Mobile devices are do or die for Apple and Nokia growth but not Microsoft. I say this is a match that could turn out to be very, very interesting in 9-18 months in combination with Intel's Medfield Atom offering for phones and tablets. Nokia looks better to than Apple did 10 years ago. Long GE INTC MSFT NOK PFE TSM T XLU

  • Report this Comment On March 12, 2011, at 8:47 AM, Boomerchef wrote:

    I've lost a bundle on Nokia, but decided there's no point in selling, because it will probably go up, even if not like a rocket. Remember, it's part of Siemens, and that's not the most stupid nor poorest company on the planet. Microsoft is the one everyone loves to hate - but they just keep chugging along - and I'm sure there are a bunch of idea people trying to figure out how to make use of the Nokia market.

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