The Money Man Behind Rick Santorum: Who Is Foster S. Friess?
Savings Experiment: Snow Removal
The contenders list is down to twelve stocks and three puts. I will not be trimming the list today. Instead, I will be reviewing possibilities among four more stocks of well established companies.There are the two largest home improvement stores, Home Depot (HD) and Lowe's Cos (LOW) as well as the two largest payroll companies, Automatic Data Processing (ADP) and Paychex Inc. (PAYX). They are all fine, well-managed companies, so this will just be a numbers game along with a sense of whether the economy is going to reward investors in 2010, or if it's too early.
Price-to-Sales indicate HD and LOW are cheap, ADP mediocre and PAYX is pricey.
- Home Depot: P/S 0.54
- Lowe's: P/S 0.66
- Automatic Data Processing: P/S 2.36
- Payxhex Inc.: P/S 4.71
- Lowe's P/B 1.49
- Home Depot: P/B 2.20
- Automatic Data Processing: P/B 3.50
- Payxhex Inc.: P/B 7.49
Return-on-Equity is respectable for all but PAYX provides outstanding returns.
- Payxhex Inc.: ROE 35.27
- Automatic Data Processing: ROE 20.83
- Lowe's: ROE 12.79
- Home Depot: ROE 12.78
Dividend Yield is a welcome aspect of each stock with 3 of the 4 being above average.
- Payxhex Inc.: Yield 3.83%
- Home Depot: Yield 3.21%
- Automatic Data Processing: Yield 3.04%
- Lowe's: Yield 1.57%
Price-to-Cash Flow is average for the first three and high for PAYX.
- Lowe's: P/CF 9.36
- Home Depot: P/CF 10.64
- Automatic Data Processing: P/CF 11.80
- Payxhex Inc.: P/CF 18.30
Paychex is the extremist pick providing the highest yield and an exemplary ROE, but pitted against the worst P/S, P/B and P/CF. The metrics are at a level that would prevent it from getting through any blind stock screen I have ever run. Clearly the numbers say that you will have to pay up for Paychex if you want the returns.
ADP has an average P/S, P/B, and P/CF with a better than average ROE and dividend. ADP gives a little less than PAYX and costs you a less as well to invest.
The question about both ADP and PAYX is will they expand their top and bottom lines in 2010 in anticipation of improved employment figures in the latter part of the year, or will they just linger at current levels until 2011? ADP has been traversing $45 per share for the last ten years and is what one of my friends would refer to as a "coupon clipper" because of the dependable dividend supported by its spotless balance sheet. I actually own Paychex, but I bought it about 20% cheaper than the $32 range its been trading at in the last month, giving me an even higher yield and ROE.
Both stocks are worth owning as core holdings, but I do not see them being priced right this month. However, if you intend to put them on your watch-list and they can be had for 20% less, snap them up.
Lowe's and Home Depot look like good values with all of their metrics being bargains to average at the worst. I think they are worthy of contention as 2010 picks. I am going to add HD to the list over LOW for two reasons. I think that both will benefit from a healing economy but HD will see greater immediate reward having far more stores in place and since they have similar metrics except for HD's yield that is twice that of LOW, I might as well take it.
Current Contenders
- American Eagle Outfitters (AEO)
- Anadarko Petroleum Corporation (APC)
- Anglo American ADR (AAUKY)
- Berkshire Hathaway Inc. (BRK.B)
- Brasil Telecom (BTM)
- Diageo plc (DEO)
- Deere & Company (DE)
- E-TRADE Financial Corporation (ETFC)
- EZCorp Inc. (EZPW)
- General Electric Company (GE)
- Grubb & Ellis (GBE)
- Home Depot (HD)
- TNT N.V (ADR) (TNTTY)
Naked puts (sell to open put options) See Chasing Value: Ten stocks for 2010 -- Part 4 for the analysis with a follow-up of these Options:
- ETFC -- April 2010 puts (EUS-PY) with a strike price of $1.50 are offering 23 cents a share.
- EZPW -- March 2010 puts (ULP-OC) with a strike price of $15.00 are offering $1.00 a share.
- WFC -- April 2010 puts (FHU-PA) with a strike price of $27.00 are offering $3.30 a share.
To start the journey from the beginning here are the links: 2010 picks: Part 1 / Part 2 / Part 3 / Part 4 / Part 5 / Part 6 / Part 7 / Part 8 / Part 9
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: Among the positions discussed in this post I own shares of PAYX.
Goldman Earnings Sink After Buffett Dividend
Johnson & Johnson's Income Falls 23%
Burberry Shares Leap on Sales Update
