In this article I am separating the good from the bad, not in terms of stock performance, but rather fundamentals compared to valuation following earnings. This is one of the best times of the year to capitalize on value, and in this piece I am looking at three stocks that are presenting large upside.
Best Q1 in More than a Decade
As the price of fuel has declined, shares of Delta Air Lines, Inc. (NYSE:DAL) have traded higher, and on Tuesday, speculation of strong fundamental performance was made valid. The company reported what it called, “its best Q1 in over a decade,” as revenue was in-line with expectations and its bottom line exceeded expectations by more than 35%. The company did see lower capacity on regional flights, yet reported a 4.1% gain in revenue per mile to indicate that further upside is present.
There are several points that I find highly encouraging about Delta Air Lines, Inc. (NYSE:DAL)’s quarter, with one being its operating cash-flow of $1.10 billion! This is a company that saw significant operational improvements, despite a loss in capacity.
When you break down its revenue by region you can really see this difference, as revenue growth outperformed capacity by a minimum two-to-one ratio in six different categories (as seen here). Furthermore, despite its large gains, this is still a stock that is very cheap, trading at just 5.50 times next year’s earnings and a price/sales ratio of 0.35. Both ratios are far below the S&P 500 average, and because of its improvements, I say “Buy” this stock!
A Good Long-Term Investment
Travelers Companies Inc (NYSE:TRV) closed on Tuesday with gains of 2.09% and is now trading at $86.35. In my opinion, it’s a stock trading with about a 15% discount to the market, with a forward P/E ratio of 11.40 and a price/sales of 1.24. It is a zero growth company, yet despite zero growth, the stock is cheap compared to current fundamentals, and it’s improving in other fundamental areas of the business. For example, the company achieved 11% income growth, despite a 1% loss in revenue, indicating a massive gain in margins.
Travelers Companies Inc (NYSE:TRV) is a large company, and it’s not an investment that will return massive gains from this point forward. However, because it’s cheap with improved fundamentals, it would make a good long-term dividend investment. When you incorporate its large buyback program and its 9% dividend hike, then I believe Travelers Companies Inc (NYSE:TRV) is a safe low beta large cap stock that could add to a nicely diversified portfolio.