Forward P/E Ratios Alone Do Not Tell Much
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A forward price-to-earnings metric does not mean much when analyzing a company, specifically if the numerator and denominator of the equation end up yielding the same result over time. This is normally the case when the price and earnings have moved up at a proportional pace. For instance, a company generates $4.00 in earnings and trades at $28 a share. One year later it earns $5.00 and trades at $35 a share. P/E ratio for both scenarios is 7. Besides using historical P/Es within specific industries, it is also helpful to add other valuation parameters to the equation: PEG ratio, Price to Book, and low short floats. The following mid cap stocks have all demonstrated solid fundamental valuations of the aforementioned ratio parameters.
Atlas Pipeline Partners (NYSE: APL) is a $2 billion company that provides natural gas gathering, processing and trading services in the Anadarko and Permian basins located in the midcontinent and southwestern regions of the United States. The stock trades with a forward P/E ratio of 22.44, PEG ratio of 0.74, price-to-book value of 1.55 and even pays a hefty dividend of 5.76%. It has a current short float of 1.4% and has a target price of 42.33. Recently company announced that it was declaring a quarterly cash distribution for the last quarter of 2011 of $.55 per common ltd. partner unit. This constituted a 48.6% increase from the previous $.37 per common LTD partner unit distribution that was paid in the last quarter of 2010.
Another high yielding energy stock that is starting to show signs of life is Enerplus Corp. (NYSE: ERF), a $4.3 billion company that has oil and natural gas property interests in Western Canada and the provinces of Alberta, British Columbia, Saskatchewan and Manitoba, as well as in the states of Montana, North Dakota, Maryland, Pennsylvania, Wyoming and Utah. During the year ended December 31st of 2010, the volumes production for company's properties consisted of approximately 42% of crude oil and liquid natural gas (LNGs), and 58% natural gas. Its average daily production is 31,135 barrels per day of crude oil, 3,889 barrels a day of liquid natural gas and 288.7 million ft.³ per day of natural gas. The stock trades with a forward P/E ratio of 9.74, a peg ratio 0.65, price-to-book value of 1.18, and has a whopping dividend yield of 8.97%. Company has a short float of 1.62% and has a near term target price of $29.04.
STMicroelectronics N.V. (NYSE: STM) is a $6.27 billion company that develops, designs, manufactures and markets a range of semiconductor products that are used in numerous microelectronic applications which also includes automotive products and computer peripherals. In the recent months the stock was able to make notable moves, rising from $6.00 a share to currently $7.00 with moderate volume. In a recent conference call transcript, it was noted that company reduced inventory by $170 million and inventory turns increased to 3.6. The company returned to positive free cash flow of $47 million in the fourth quarter due to heavy demand. The stock trades with a forward P/E ratio of 19.16, a peg ratio of 0.35, has a price-to-book value of 0.8 and it pays a solid dividend of 5.64%. STM has a short float ratio of 0.32% and has a target price of $7.86.
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