Monday July 23, 2012
by Chuck Carlson, editor DRIP Investor
When bottom-fishing for turnaround stocks, it is best to focus on those stocks possessing decent rankings for Value, Quality, and Financial Strength.
Alfac (AFL) and Timken (TKR) stand out for their exceptional quantitative scores. Both stocks score in the top 5% of the some 4,000 stocks in our Quadrix universe.
Aflac provides supplemental health and life insurance. The company is a major player in supplemental cancer insurance policies sold in Japan. Overall, Japanese operations accounted for roughly three-quarters of sales and more than 80% of profits in 2011.
Per-share proﬁts should come in around $6.55 in 2012, up from $6.33 per share in 2011. Based on 2012 earnings estimates, the stock trades at just six times earnings.
One factor impinging on the stock is the ﬁrm’s exposure to European credit markets. Aﬂac has done a good job of reducing the risk on its balance sheet, with 94% of its investment portfolio considered investment grade at the end of 2011.
The company has unwound a lot of its exposure to Europe, with exposure in the most troubled European countries totaling around 2% of invested assets. Still, Aﬂ ac stock has a tendency to react when concerns over the Euro Zone swell.
While there is the risk of above-average volatility in the near term, Aﬂ ac stock offers excellent long-term value for investors. The dividend yield of 3.2% enhances appeal.
Aﬂac’s direct-purchase plan has a minimum initial investment of $1,000. Subsequent investments are a minimum $50. There are no purchase fees in the plan. For enrollment information call (800) 227-4756.
Timken manufactures and markets bearings and assemblies, alloy steels, and mechanical power transmission systems. Products are used in a host of industries, including the automotive, aerospace, and energy sectors.
The stock is not a household name with most investors, but the company has put up a pretty solid track record over the years. Proﬁt growth should continue this year, with per- share proﬁ ts for 2012 expected to reach $5.75, up from $4.59 in 2011.
The stock is down 26% from its 52-week high. Timken is extremely sensitive to the economy — witness the sharp decline in proﬁ ts in 2009 — and concerns about a global economic slowdown have hurt the stock lately.
However, with the stock trading at less than eight times 2012 earnings estimates, it seems these shares are discounting a lot of bad news.
For investors who want to add a midcap stock to their portfolios — the stock’s market capitalization (number of outstanding shares times the per-share stock price) is a little over $4 billion — these shares have appeal. The stock yields 2%, and the dividend has more than doubled since 2010.
Minimum initial investment in Timken’s direct-purchase plan is $1,000. The ﬁrm will waive the minimum if an investor agrees to automatic monthly investment via electronic debit of a bank account of at least $100.
There is a one-time enrollment fee of $10 but no other purchase fees. Selling fees are $15 plus $0.10 per share. The plan administrator is Wells Fargo. For enrollment information call (800) 468-9716
Learn more about this financial newsletter at Chuck Carlson's DRIP Investor.