3 Large-Cap Buys
Anh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
When investors think of large-cap companies, we normally think about stability. Most large-cap companies have strong legacies with long operating histories. Those large-cap businesses offer investors peace of mind with stable business and consistent dividends. Retirees consider those companies for both value and income reasons. I decided to search for cheap, large-cap businesses that are paying decent dividend yields to shareholders. Five criteria were selected: (1) market cap is greater than $10 billion; (2) return on invested capital is greater than 20%; (3) P/E ratio is maximum 10x, (4) Dividend yield must be at least 3%, and (5) payout ratio is less than 40%. Here are the only 3 results:
Seagate Technology (NASDAQ: STX) is the global leading supplier of electronic data storage. The majority of sales came from OEMs (original equipment manufacturers) with master purchase agreements in 12 – 24 months. In fiscal 2012, 72% of its total revenue were from OEM, whereas 21% was from distributors. Asia Pacific is the region contributing most sales, with 55%. The Americas rank the second with 26% of total sales. According to iSupply, as of Q4 2011, after the food in Thailand, Seagate shipped 46.9 million units. It suddenly had the largest market share, with 38% of the market. Western Digital (NASDAQ: WDC) shipped only 28.5 million units, accounting for 23% of the total market. Seagate is trading for $26.75 per share, with a total market capitalization of more than $9 billion. Western Digital is worth an equivalent amount, nearly $8.4 billion, with shares trading at $34.38 per share. Over the last 12 months, its ROIC was quite high, nearly 54%, two times higher than 23.4% of Western Digital. Currently, Seagate is valued at 3.5x P/E, with its 4.3% dividend yield. The payout ratio was quite low, 13.2%.
Intel (NASDAQ: INTC) has been mentioned as a potential undervalued investment opportunity. The company was considered to be the market leader in the semiconductor industry. Its PC Client Group brought in the majority of its revenue, around 66% of $54 billion total sales. Intel has lost its momentum, along with the weak overall environment in the PC industry. Its stock was $26.88 in August this year, and now it is trading for only $19.36 per share. During its business turmoil, the President and CEO, Paul Otellini, said that he would retire in May after 40 years working for Intel. For the trailing twelve months, the ROIC was nearly 21.7%. During the past 10 years, the company has been paying increasing and consistent dividends. The dividend yield is rich at 4.5% with only 37.4% payout ratio. Currently, Intel is trading at $19.36 per share, with the total market capitalization of $96.34 billion. The market is valuing Intel at 8.5x P/E and 1.4x PEG.
Statoil (NYSE: STO) is a Norwegian oil/gas corporation with operations in more than 41 countries. It was controlled by the Norwegian state with 67% ownership. As of December 2011, Statoil had proved reserves of more than 5.4 billion BOE. This company is the second-largest natural gas provider for European markets. Trailing twelve months, it delivered a 20.5% return on invested capital. Shareholders are getting a quite decent dividend yield, 3.8% annually. Even with that decent yield, the payout ratio is only 21.7%. Currently, it is trading at $24.23 per share, with the total market capitalization of $77.26 billion. The market is valuing Statoil at only 5.4x P/E and 0.4x PEG.
My Foolish Take
With high returns on invested capital, decent dividend yields, low payout ratios, and single digit valuations, all three companies should be considered to be long-term positions in diversified income portfolios of investors.
hoangquocanh has no positions in the stocks mentioned above. The Motley Fool owns shares of Intel and Western Digital. Motley Fool newsletter services recommend Intel and Statoil (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!