Three Stocks Looking Attractive After Earnings

Bob is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Amidst the hoopla over the Dow Jones Industrial Average breaking through its all-time high, and the S&P 500 Index not far behind, value investors feel that the market is a little frothy. Investors who follow Benjamin Graham and Warren Buffett understand the merits of obtaining a meaningful margin of safety from stocks, which is to say they know that even the best companies can be poor investments if too high a price is paid.

If you count yourself among this crowd, you might be understandably frustrated by the lack of readily available bargain stocks in the current market environment. Fortunately, we’ve had a few notable companies release quarterly earnings recently. These stocks had some good things to say in their reports and for the most part, happen to be trading for valuations that won’t raise your blood pressure.

After a horrible down day, is this tech giant cheap?

Oracle (NYSE: ORCL) stockholders received a rude awakening on March 21 when they found their company fell 9% on the day after releasing quarterly earnings that did not meet Wall Street expectations. On the surface, Oracle’s results certainly didn’t seem terrible. It’s been well publicized that the last year has been a tough one for technology companies.

Third quarter total revenues declined 1% year-over-year, but GAAP earnings per share increased 6% versus the previous year’s third quarter. There’s a good chance this disappointing quarter may be a one-off. It’s worth noting that Oracle reported 4.2% growth in full-year 2012 revenue, and the company has grown its revenues by 17% compounded annually since 2009.

Buy Nike? Just do it

On the flip side, Nike (NYSE: NKE) stockholders had to be pleased with their company’s results, after which the stock soared 11% in one day. Nike reported net revenue growth of 9%, to $6.2 billion, and 20% diluted earnings per share growth.

There was a lot to like about Nike's announcement, as its business is executing well and management is deploying shareholder money effectively. Not only did organic sales increase, but the company’s bottom line also benefited from gross margin expansion and reduced shares outstanding. It appears that Nike can do no wrong at this point. Its shares are up more than 10% over the past 52 weeks and are sitting at a split-adjusted all-time high.

Serving up profits and dividends

Darden Restaurants (NYSE: DRI), the operator of full-service restaurants Olive Garden, Red Lobster, and LongHorn Steakhouse in the United States and Canada, provided investors with a mixed report. Darden’s performance in the third quarter might give investors indigestion, as the company reported quarterly diluted earnings per share of $1.02, an 18% drop year-over-year.

Furthermore, while total sales grew 4.6% versus the prior year’s third quarter, these gains were due entirely to additional sales from new restaurants and the company’s Specialty Restaurant group. Its core group of Olive Garden, Red Lobster, and LongHorn Steakhouse posted a same-store sales (which measure locations open at least one year) decline of 4.6%.

On a positive note, Darden is actively turning its business in the right direction. Investors should take note of the company’s international growth initiatives as a way to engineer growth going forward. Darden recently announced it would build more than 50 restaurants in Brazil, Colombia, the Dominican Republic, and Panama. Should these restaurants take hold, the company may benefit handsomely from this emerging market opportunity.

The Foolish takeaway

Despite mixed reports from Oracle and Darden, they now appear attractively priced, trading for trailing price-to-earnings ratios of just 14. Each has something different to offer, depending on your investment desires. Growth-oriented investors will find more to like with Oracle, as its revenue growth over the past few years exceeds comparable growth from the broader market. Income investors would probably prefer Darden, because it offers a 4% dividend yield. Furthermore, Darden’s dividend growth over the past few years is impressive. In 2012, the company served investors a 16% dividend bump.

It’s hard to make the claim that Nike is a screaming value play, but at the same time, it’s one of the world’s most recognizable and valuable brands. It’s worth adding, though, that as the stock continues to climb, the inherent margin of safety gets thinner and thinner. Nike will have to keep meeting the higher expectations Mr. Market is placing on the company. It currently exchanges hands for more than 25 times trailing twelve-month earnings, but at the same time, you can’t argue with results. The company’s performance continues to make the market happy, and investors should enjoy the ride.

Robert Ciura has no position in any stocks mentioned. The Motley Fool recommends Nike. The Motley Fool owns shares of Darden Restaurants, Nike, and Oracle. 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!

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