Serious Money: Fortune's 25 leaders, 18 remain

The next screen uses price-to-cash-flow (P/CF), which tells you what you are paying for what level of liquidity. This is very important, and even more so in troubled times. There should be no doubt that it was a factor in helping the GE, and American Express get through the year.

1. General Electric Co. (GE): 5.29
2. American Express Co. (AXP): 5.34
3. PepsiCo Inc. (PEP): 5.34
4. China Mobile Limited (CHL): 6.45
5. FedEx Corp. (FDX): 7.21
6. Lockheed Martin Corp. (LMT): 8.02
7. International Business Machines Corp. (IBM): 8.40
8. TNT Post ADR (TNTTY): 8.72
9. ICICI Bank Ltd. (IBN): 8.96
10. Eli Lilly & Co. (LLY): 9.51
11. Whirlpool Corp. (WHR): 10.19
12. Intel Corp. (INTC): 10.68
13. McDonald's Corp. (MCD): 12.17
14. 3M Co. (MMM): 12.26
15. Deere & Co. (DE): 12.72
16. General Mills Inc. (GIS): 12.57
17. Procter & Gamble Co. (PG): 12.95
18. Unilever plc (UL): 21.56

It appears there are at least three relative bargains here. You can compare these companies to each other, or themselves using historic data or, as is common, to industry peers. I will save this exercise until after the list is reduced further. While the P/CF range is just over 2:1 from low to high, this metric has an outlier in Unilever at 4:1. That is a tad pricey. I wonder what the cause is? Are some of the major market makers pumping up the buy side or has cash-flow slowed faster than the market acknowledges?

The return-on-equity (ROE) is one measure of management's focus on increasing shareholder value based on what they had to work with when they started. There are many people who think GE's CEO, Jeffrey Immelt, has destroyed shareholder value, based solely on the stock price being a fraction of where it stood ten years ago. That does matter, but I do not recall many suggestions as to how he might change the macro business environment.

1. IBM: 59.19
2. Lockheed Martin: 57.9
3. Unilever: 45.54
4. PepsiCo: 35.34
5. 3M: 32.28
6. TNT Post: 31.35
7. McDonald's: 30.67
8. Deere: 29.94
9. China Mobile: 28.09
10. American Express: 23.97
11. General Mills: 22.56
12. Procter & Gamble: 17.62
13. General Electric: 16.76
14. Intel: 12.77
15. Whirlpool: 11.87
16. ICICI Bank: 7.61
17. FedEx: 7.07
18. Eli Lilly: -21.20

Now that I have gone through the exercise, I'm not even sure I believe all the ROE numbers. It is terrific that all these fine managers have rewarded shareholders so much, but can 30% plus be maintained? And the top three ranging from 45% to 60% -- no way that can last! If they are still around at the end of this review, this issue is worth revisiting in more detail.

The following list blends the P/CF and ROE results:

PepsiCo: 3 + 4 = 7
IBM: 7 + 1 = 8
Lockheed Martin: 6 + 2 = 8
American Express: 2 + 10 = 12
China Mobile: 4 + 9 = 13
General Electric: 1 +13 = 14
TNT Post: 8 + 6 = 14
General Mills: 16 + 11 = 27
3M: 14 + 5 = 19
McDonald's: 13 + 7 = 20
Unilever: 18 + 3 = 21
Deere: 15 + 8 = 23
FedEx: 5 + 17 = 23
ICICI Bank: 9 +16 = 25
Intel: 12 + 14 = 26
Whirlpool: 11+ 15 = 26
Eli Lilly: 10 + 18 = 28
Procter & Gamble: 17 +12 = 29

The following is yesterday's list blend of the P/B, P/E and P/S results:

General Electric: 3 + 5 + 7 = 15
Whirlpool: 2 + 15 +1 = 18
Deere: 5 + 11 + 3 = 19
ICICI: 1 + 17 + 5 = 23
TNT Post: 10 + 6 + 8 = 24
FedEx: 4 + 19 + 2 = 25.
Lockheed Martin: 18 + 2 + 6 = 26
Eli Lilly: 12 + 1 + 14 = 27
China Mobile: 7 + 3 + 20 = 30
General Mills: 11 + 8 + 11 = 30
Unilever: 15 + 7 + 8 = 30
American Express: 9 + 18 + 4 = 31
IBM: 17+ 4 +10 = 31
Procter & Gamble: 6 + 10 + 17 = 33
Intel: 7 + 20 + 10 = 37
3M: 13 + 13 + 12 = 38
McDonald's: 14 + 9 + 18 = 41
PepsiCo: 20 + 12 + 13 = 45

At this point, having screened for five important value criteria, its time to get out the ax and reduce the list to serious value possibilities. When screening for value stocks, as I have in this series, sometimes I come up empty handed. It takes discipline, and there is no imperative to throw your money around. Patience is not synonymous with fear. For those stocks on the borderline, I will be adding subjective macro economic criteria to temper the raw numbers.

GE is the first stock to get a pass here. I'm not surprised since I have already run it through the ringer for several years. I own it and it is being considered for 2010 already. It stands out in every category.

Whirlpool is tempting, but I am just not convinced 2010 is the year consumers return to spending on durable goods. My view of Deere is a little different because farming may expand as the economy improves, perhaps by the spring, and Deere's metrics make it worth a little more study.

ICICI Bank is getting cut as being fairly valued. I have recommend it before, at one third it's current price at about $38, and it would be a good stock addition to your watch list. Except for its P/B, it is not remarkable. Since it is a bank, in today's environment the book value could be highly suspect.

TNT Post is intriguing because of the strong metrics and because it combines its Dutch postal monopoly with its growing international delivery service. It makes the cut. The knock on FedEx from this review is its poor ROE. From what I have read recently, it has been spending through the economic grand canyon, which may account for this. I will let it pass as a good comparison for TNT.

I am cutting Lockheed because I think defense spending will be in a holding pattern for a while and its unbelievable ROE is a nonsustainable trailing figure built-up post 9/11 tragedy and war build-up.

Health care remains in the news and our lone stock in that category is Eli Lilly. It's ROE stinks and the company has been under a cloud for a while. It may be a major turnaround play in the eyes of some, but I will just turn away.

China Mobile is another stock that looks fairly valued, except that its P/S screams growth stock, not value stock. I will leave this one for others to haggle over, but I think it is one to put on your watch list in case the volatile Chinese market drives the price down at some point.

General Mills was great in 2009 and might be fine in 2010 but its numbers indicate only average opportunity. Unilever is another consumer products company with a huge footprint and great brands. However, its metrics are all over the place. It is on my watch list, and there it shall stay.

American Express also did well in 2009 after we passed the March depression. It made a good showing in most of the screens, with great opportunity from a P/S and P/CF perspective. It is one of the three stocks in this survey in which Berkshire Hathaway is the largest shareholder, the other two being GE and P&G.

IBM only slipped up in the first screen, examining P/B, and in others was remarkable. It beat earnings estimates in the latest quarter and may be set to continue the pace if the economy continues to heal, making it worthy of a pass.

P&G is a great company with average metrics. Since nothing stands out, I'm cutting it. The same goes for Intel, 3M, McDonald's and PepsiCo. All of them are tops in their sectors and may be positioned to excel in 2010. They also fit the bill for a market that is favoring large-cap stocks, but based on the numbers I think the market is saying you have to pay up to go along for the ride, and we want bargains.

The next review in this series will only include six stocks: American Express, Deere, FedEx, GE, IBM and TNT.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture and planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own GE, as of this publication.