Everyone likes a sale, but most times the really good stuff isn't marked down. It is similar in the stock market -- the blue-chip companies, the best of the best, are rarely on sale. But sometimes they are.
Sometimes the market falls to a point where some of the biggest and best companies trade at very cheap prices. We at The Motley Fool think this time is now, so we should be able to find some fantastic values out there.
To look for such bargains, I used the screening tool found in CAPS, the Fool's community intelligence database of 110,000-plus investors.
CAPS weighs in
I screened for large-cap consumer goods stocks with four- or five-star CAPS ratings (the best) and 300 or more active picks. To further winnow down the list to the best opportunities, I searched for stocks:
- with a return on equity of 15% or higher (a good business),
- near their 52-week lows,
- and with a P/E of 15 or less (signs of a cheap price).
And the contenders are ...
|
Company
|
CAPS Rating
|
Market Cap (in billions)
|
Return on Equity (TTM)
|
Price-to-Earnings (TTM)
|
% Above 12-Month Low
|
|
Diageo (NYSE: DEO )
|
*****
|
$45.5
|
42.4
|
14.8
|
2.4%
|
|
Kimberly-Clark (NYSE: KMB )
|
****
|
$23.0
|
32.5
|
13.2
|
9.1%
|
|
PACCAR (Nasdaq: PCAR )
|
****
|
$14.7
|
22.2
|
13.0
|
4.1%
|
|
Archer Daniels Midland (NYSE: ADM )
|
****
|
$18.3
|
18.1
|
7.7
|
4.5%
|
|
Royal Philips Electronics (NYSE: PHG )
|
****
|
$33.5
|
15.9
|
6.3
|
6.4%
|
Source: Motley Fool CAPS as of July 15. TTM = trailing 12 months.
Hmm ... five multibillion-dollar blue chips generating impressive returns on equity, yet trading at price to earnings ratios of six to 15 times? What gives? Why would these top-notch companies be so cheap if they are the best of the best -- big companies with strong market positions and consistent profit generation, along the lines of Coca-Cola (NYSE: KO ) or Johnson & Johnson (NYSE: JNJ ) ?
Well, digging a little bit reveals that Royal Philips Electronics, a Dutch manufacturer of light bulbs, televisions, and health-care equipment, has the lowest P/E because it had a big one-time gain last year. Its P/E on a forward basis is higher.
On the other hand, Diageo, the global alcoholic drinks company, trades near its 52-week low and below 15 times earnings for no apparent reason except perhaps fears of slowing global growth. But this is a globally diversified company with strong brands that should hold up well in a slow growth environment. And, it pays a 3.8% dividend.
This is the good stuff, folks, and it's on sale. These companies have high rankings in CAPS, good returns on equity, and trade near their 52-week lows, which can often be the best time to buy strong companies like those above. Would you rather buy a solid business like Diageo at its 52-week high of $93 per share, or its 52-week low of $69 per share? If you answered the latter, now is your chance.
Blue-chip companies might not go up 25% for you each year, but they shouldn't go down too much, either. If you can get into them at cheap prices (like now), you will greatly improve your prospective returns. So, play around with some CAPS screens and see if you can unearth some other fantastically priced blue chips for your portfolio.
Come join us on CAPS to investigate these and countless other interesting stock ideas, and perhaps rate some stocks of your own.
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