The stock market has had a tremendous run up since the 2009 lows. This makes it harder to find beaten down cheap stocks that have a great long-term potential to produce good returns for patient shareholders. Here are few names that stand out and may pay off for long-term investors:
1. Huntsman Corporation (HUN)
Huntsman Corp is a global manufacturer and marketer of differentiated chemicals with over 100 manufacturing and R&D facilities in more than 30 countries. The company has five business segments: Pigments & Additives, Polyurethanes, Textile Effects, Advanced Materials and Performance Products. In 2014, Huntsman reported over $12 billion in revenue and $1.5 billion adjusted EBITDA. The company is investing in several growth projects that will add more than $200 million of annual EBITDA over the next few years.
The stock is currently trading around $21.75 with a P/E ratio of 16.18 and forward P/E ratio of just 7.66. According to the latest earnings report, the company had $860 billion in cash and $5.21 billion in debt. A significant portion of its debt matures after 2019. Management expects earnings per share to reach $3-$4 per share in the next two to three years. Based on that, the stock could eventually trade in the $40’s. The company currently pays a nice dividend yield of 2.3% which would also grow with increased earnings.
2. Citigroup Inc. (C)
Citigroup Inc. is a diversified financial services holding company, that provides products and services to consumers, businesses, governments and institutions globally. The company operates through two segments, Consumer Banking and Institutional Clients. The bank recently passed the Federal Reserve stress test and was allowed to return capital to its shareholders. The company raised its dividend from 1 cent to 5 cents. This increase had been long awaited by shareholder after the bank cut its dividend to 1 cent per share when the financial crisis hit in 2008. Also, Citigroup will buy-back a whopping $7.8 billion in stock within a year.
The stock currently trades at around $52.00 with a P/E ratio of $23.61 and a forward P/E ratio of just 8.86, one of the lowest among the large-cap banks. The bank has a book value of $66.16 and a tangible book value of $56. Citigroup trades at just 0.78 times book value. Historically banks have traded at 1 or 1.5 times book value. Citigroup is the ONLY bank trading below tangible book value. Recently, the bank signed a long-term deal to become the exclusive issuer of Costco co-brand cards. Mostly all legal issues are behind them and future looks very bright for them with interest rates expected to rise later this year. The bank is also selling less profitable global operations which will increase its margins. The stock could trade in the $70’s within the next 2-3 years. Citigroup stock has the most upside among the large-cap banks.
3. American International Group (AIG)
American International Group (AIG) is a leading international insurance organization serving customers in more than 130 countries. AIG’s customers include commercial, institutional and individual customers all around the world. AIG employs around 65,000 employees and $64 billion in revenue in 2014. The company has two lines of businesses: Commercial Insurance and Consumer Insurance. The commercial insurance is ranked among the top 10 most preferred insurance carriers and is #1 is the U.S. AIG is #1 provider of fixed-rate deferred annuity sales and #2 in K-12 assets and #3 in 403(b) assets.
The stock currently trades at around $55 with a P/E ratio of 10.56 and a forward P/E ratio of 9.85. AIG’s book value is 77.69, which means the stock is trading at just 0.71 times book value. That is a very deep discount that should narrow, giving the stock tremendous upside potential. In recent years AIG has divested non-insurance businesses making its operations less risky and more profitable. Its financial crisis problems are behind them and management can now concentrate on growing its core insurance operations. The stock should eventually trade at 1 times book value once interest rates start rising. Expect the stock to trade in the $70’s within the next 1-2 years.
4. Tyson Foods Inc. (TSN)
Tyson Foods is one of the largest food companies in the world. The company produces, distributes and markets chicken, beef, pork and prepared foods worldwide. Tyson Foods produces 1 out of every 5 pounds of chicken, beef and port in the United States. Tyson Foods manufactures and markets frozen and refrigerated food products, such as pepperoni, bacon, beef and pork pizza toppings, pizza crusts, flour and corn tortilla products, appetizers, prepared meals, ethnic foods, soups, sauces, side dishes, meat dishes, and processed meats. The company had $37.6 billion in sales and $1.5 billion in operating cash flow in 2014.
Tyson stock is currently trading around $39.00. Its has a P/E ratio of 16.35 and forward P/E of 10.69. The stock has recently pulled back because of fears of a bird-flu virus and also fears that an oversupply of chicken would reduce margins. Additionally, feed-stock prices are expected to rise which may erode margins. However, these fear are overblown as the company has a diverse group of products that it produces and sells. Its packaged foods segment is growing rapidly both in the U.S and globally. Tyson recently bought out Hillshire brands to diversify its product mix. The company has a great economic moat by having a huge barrier of entry, efficient distribution system and good relations with supplies and retailers. Tyson is #2 in Frozen foods behind Nestle. The company expects EPS of $3.30-$3.40 per share in 2015. At a 15 multiple, the stock could trade around $49 by the end of the year. The company pays a dividend yield of around 1% which could grow if the company continues to grow.