Prudential Financial

Ticker: PRU, Buy below $100.

Prudential Financial a Fortune 500 company providing insurance, financial management and other financial products.

Why I Would Buy

1.       Cheap – Prudential’s stock is currently selling for < 6x earnings.

2.      Strong Buy rating – Sports a 5 star buy rating from S&P   

3.       Low Payout Ratio – The dividend is a respectable 3%, with a payout ratio below 30%.

4.      Good Credit Ratings – Long term debt of the company is rated investment grade by all three rating agencies.

What Could Go Wrong

1.       Uneven Performance – During the past decade, Prudential has had 2 years of negative earnings.

Disclosure: I am long PRU, please read additional disclosures here before taking any action based on this post.

LyondellBasell Industries

LyondellBasell is one of the world’s largest chemical and plastics companies.

Why I Would Buy

1.       Cheap – LyondellBassell’s stock is currently selling for < 9x forward earnings.

2.      Strong Returns on Equity – As visitors to this site know RoE is my favorite metric for evaluating stocks. LYB has delivered an eye-popping 50% returns on equity during the  past 5 years!  

3.       Low Payout Ratio – The dividend is a respectable 3%, with a payout ratio below 30%.

4.      Good Credit Ratings – Long term debt of the company is rated investment grade by all three rating agencies.

What Could Go Wrong

1.       High COGS (Cost of Goods Sold) – LyondellBassell  has incredibly high COGS, approaching80% of revenue. Even small increases in cost of raw materials will significantly eat into profits.  

 Disclosure: I am long LYB, please read additional disclosures here before taking any action based on this post.

Lincoln National

Ticker: LNC, Buy below $66.

Lincoln National is a Fortune 250 American holding company, which operates multiple insurance and investment management businesses.

Why I Would Buy

  1. Cheap – LNC is currently selling for > 8x trailing earnings and forward earnings.
  2. Below Book – The stock can be purchased below it’s book value (P/B: 0.93).
  3. Return on Equity – RoE has been at a high single digit level for the past decade.
  4. Low Payout Ratio – The dividend is a respectable 2%, but a payout ratio below 20% affords plenty of opportunity for future dividend growth.
  5. Strong Buyback – Management has announced an aggressive share buyback program, which is likely to be accretive to shareholders given the low valuations of the stock.

What Could Go Wrong

  1. Credit Rating – Long term debt of LNC is rated BBB+ by S&P, I would’ve liked higher ratings.
  2. RoE – Although decent, consistent double digit returns would’ve made the stock more attractive
  3. Relative Valuation – Not particularly cheap when compared to other large life insurers.

 

Disclosure: I am long LNC, please read additional disclosures here before taking any action based on this post.

 

TCP Capital Corp.

Ticker: TCPC, Buy below $16.

TCP Capital Corp is a Small-Cap Business Development Company that is focused on middle market lending.

Why I Would Buy

  1. Dividend – Yields over 9%. This dividend is well covered by Net Investment Income (110% dividend coverage in 2017).
  2. Insider Trends – Officers has been aggressive buyers for last 12 months, especially so within the last 3 months.
  3. Credit Ratings – TCP Capital’s debt is rated investment grade, a testament to the company’s strong balance sheet.
  4. Cheap – TCPC currently trades below its book value.
  5. Fee Structure – TCPC has one of best advisory fee structures in the BDC industry, its base and incentive fee compensations are shareholder friendly.

What Could Go Wrong

  1. High Beta – BDCs like TPC that serve the middle markets are strongly correlated to the domestic US economy, and will suffer disproportionately in an economic downturn.

 

Disclosure: I am long TCPC, please read additional disclosures here before taking any action based on this post.

The Interpublic Group

Ticker: IPG, Buy below $24.

Why I Would Buy

  1. Cheap– Interpublic trades at less than 14 times forward earnings and 1.1 revenues.
  2. RoE – Return-on-Equity is my favorite metric, IPG has maintained double digit returns on equity for the past decade.
  3. Dividend – Currently yields over 3%.
  4. Contrarianism – IPG is near a 52 week low.

What Could Go Wrong

  1. High Beta – Advertising and media spend are strongly correlated to global economy, and is first spending to be cut in a downturn.
  2. High Payout – Payout ratio has been steadily climbing, and is nearing 50% of earnings.

Disclosure: I am long IPG, please read additional disclosures here before taking any action based on this post.