Value investing is one of the best investment strategies individual investors can use to beat the market in the long run. Even though the stock market was pretty stagnant during the last 10 years, value investors were able to return around 7 percent per year.
In the search for large-cap value stocks, we ran a screen for stocks that were rated 5 stars, or “strong buy,” by Standard & Poor’s. We found the following list of 7 stocks each of which has a P/E ratio of 10 or less.
1. Barrick Gold Corp (ABX): ABX is a gold and mining exploration and production company. It has a market cap of more than $46 billion. The stock is currently trading at a forward PE of 8, and its EPS is expected to grow 58% annually for the next five years. The stock currently trades at about $46.50, and S&P is very bullish about it, predicting a more than 70% return in the next 12 months. ABX lost 13% last year and was owned by 39 hedge funds at the end of Q3. Total hedge fund investment in ABX at that time was nearly $1.58 billion. Dan Loeb, David Einhorn, and Jim Simons were among ABX’s largest stakeholders (see Jim Simons’ top stock picks).
2. Apache Corp (APA) is an energy company which specializes in natural gas, crude oil and natural gas liquids. The company has a market cap of $37.5 billion. It has a forward PE of nearly 8 and its EPS is expected to grow at 6%. The stock lost 24% in 2011, but S&P predicts a 50% return in the next 12 months. Thirty hedge funds had $1.15 billion invested in APA in the third quarter 2011.
3. Cliffs Natural Resources Inc. (CLF) is a global mining and natural resources company. It has a market cap of $10.4 billion and trades at a forward PE of 5.7. Its expected EPS growth rate is about 20% for the next five years. CLF dropped 20% in 2011 while S&P gives a 12 Mo. target return of 44%. Twenty two hedge funds were invested in CLF at the end of the third quarter last year, with a total volume of $283 million. Ken Fisher was CLF’s largest stakeholder among the funds we track (see Ken Fisher’s stock picks).
4. Chevron Corp (CVX) is an energy giant with a market cap of nearly $213 billion and has a forward PE of just above 8. Its EPS is expected to grow at 7.5%. CVX managed to beat the S&P500 by advancing 20% in 2011. In addition to the upside, it also has a sound dividend yield of 3%. In the next 12 months, S&P predicts a 23% return for CVX. Thirty-eight hedge funds were invested in CVX at the end of the third quarter, with a total exposure of $919 million. Bill Miller and Cliff Asness each had more than 1 million shares in the stock at the end of September.
5. Dell Inc. (DELL) is a well-known information technology and business services company. It has a market cap of $30.4 billion, with a forward PE of 8. The company also has an expected EPS growth rate of 6% for the next five years. S&P estimates a 13% return over the next 12 months. In 2011, DELL returned 7%. Of the 350+ funds we track, 36 hedge fund portfolios included DELL as of the end of September. Total hedge fund investment was about $2.9 billion at the end of the third quarter. Mason Hawkins’ Southeastern Asset Management had a particularly large position in DELL, owning more than 146 million shares in the company at the end of September.
6. General Motors Co. (GM) is a worldwide automotive company. The company has a $39 billion market cap and currently trades with a forward PE of 6.6. Its EPS is expected to grow at 11% annually for the next five years. GM tumbled in 2011 and lost a whopping 45% during the year. S&P predicts a 36% return in the next 12 months. Seventy-one hedge funds retained their positions in GM at the end of September, with more than $2 billion in the stock. David Einhorn had nearly 15 million shares of GM during that time (see David Einhorn’s favorite stocks).
7. Rio Tinto Plc. (RIO) is a minerals exploration and production company. It has a market cap of $110 billion. The stock currently has a forward PE of 6.7 and an expected EPS growth rate of 17%. RIO lost 30% last year but S&P recommends a 34% return over the next 12 months. Howard Marks initiated a brand new position in RIO during the third quarter.