According to Bespoke Investment Group, five stocks in the Dow 30 were oversold as of August 13. Although I'm not a fan of giant-cap stocks, let's examine each of the companies to see if any of them provide a good entry point for a long-term hold. These selections are in ascending order from worst to best.
IN PICTURES: 5 Tips To Reading The Balance Sheet
Best Bets In The Dow 30
|Company||% Below 52-Week High||% Below 5-Year High|
|Bank of America (NYSE:BAC)||33%||76%|
|Cisco Systems (Nasdaq:CSCO)||20%||35%|
|Procter & Gamble (NYSE:PG)||7%||20%|
Although it would be easy to rank Hewlett-Packard as the worst potential long-term buy because of its obvious lack of credible leadership, it's not my main reason. Instead, Hewlett-Packard has spent the better part of a decade, including the last five with Mark Hurd in charge, growing the top-line through acquisitions and the bottom-line through severe cost-cutting, throwing internal growth, once a hallmark of the tech pioneer, out the window.
In addition, it appears its board is ready to make a quick hiring decision as it did when it fired Carly Fiorina in 2005. If the HP team is as strong as interim CEO Cathie Lesjak insists it is, they should be in no hurry to make a move, especially given its track record hiring CEOs.
Procter & Gamble
Sitting 7% below its 52-week high, the consumer goods champion is definitely having the best year-to-date of the group. It's likely why Berkshire Hathaway has sold 12% of its holdings in the first six months of 2010. Obviously, Warren Buffett feels the money is better off somewhere else, and it's hard to argue that. It's a great company and if price weren't an issue, it would rank higher.
Bank of America
This is the toughest of the five selections. On the one hand, the bank is in the midst of selling $500 billion, or 21% of its total assets, making it difficult to know what the bank will look like once the potential sale of many of its assets is completed. However, the stock is trading way off its $55 all-time high. Consider this a speculative buy. The price is right but there's a lot that needs to be answered about the company's future.
CiscoMicrosoft (Nasdaq:MSFT)? Although more expensive than Intel, its cash position is an enviable one with over $7 a share. Investment manager Chuck Carnevale suggests Cisco is trading at fair value for the first time since 1997.
Although its debt levels are a concern, one look at its cash calms any negative thoughts, especially when you consider it's using this cash to buy back stock and hire additional employees. Both point to a management bullish about the future.
Hedge fund manager Tim Seymour is a fan of the chipmaker, suggesting PC sales are nowhere near peaking and with 80% market share, is a great company to own. Its stock currently trades at 11.3 times earnings, much less than its historical norm of 18 or 19 times and an enterprise value just five times EBITDA.
This compares to 9.7 times EBITDA for Analog Devices (NYSE:ADI), its largest peer by market cap. Sitting on $18 billion in cash and short term investments, Intel is the winner over Cisco in a photo finish. If I were a technology hound, I'd own both.
The Bottom Line
The future direction of the markets remains uncertain. However, some of America's largest companies currently provide real buying opportunities, especially Intel and Cisco.
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
Stock AnalysisA summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
Options & FuturesInvesting during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
Investing BasicsHeld onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
EconomicsWill remaining calm and staying long present significant risks to your investment health?
Stock AnalysisIs DKS a bargain here?
Investing NewsA third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
Stock AnalysisHome Depot has outperformed the market by a wide margin in the last 12 months. Is this sustainable?
Stock AnalysisYelp investors have had reason to be happy recently. Will the good spirits last?
Stock AnalysisWalmart is enjoying a short-term rally. Is it sustainable? Is Amazon still a better bet?
Stock AnalysisAs a company that primarily sells discretionary products, GoPro and its potential falls right in line with consumer trends. Is that good or bad?
When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>