The results are in...
Elliott Gue's Top 10 Stocks has recommended "hated" cigarette manufacturer Philip Morris (PM) many times over the years. Well, I wondered what other "hated" companies are worthy of a second look.
It turns out I found two such companies.
To make my research a little easier, it just so happens Harris Interactive's 14th Annual Reputation Quotient Survey just released its latest poll results. The company rated 60 large U.S. companies based on six characteristics including product quality, trust, social responsibility and how employees are treated. This year, 10 U.S. companies were singled out as the most "hated" in the United States.
But where do these companies stand as investment opportunities? I set about finding out.
And at the end of the day, while a company's overall reputation can certainly affect stock prices, I'm more interested in company fundamentals -- cash flow, dividends, share buybacks, revenue, new products, competition...
After all, our job at StreetAuthority is to help you make money, regardless of which way the winds of public opinion blow on any given day.
Just look at Philip Morris. What makes it so great? Well, the business gushes free cash flow and has generously rewarded shareholders for years through growing dividends and share buybacks.
A quick look at its cash flow statement reveals that it returned more than $10 billion to shareholders in the last year. An (approximately) equal split between dividends and share buybacks has made it one of the most shareholder-friendly companies on Earth.
So whether you like its products or not, the company has been a great investment. And that brings me to two other great, "hated" companies I found for you.
First, Harris says these are the most hated companies in the United States:
1. AIG (AIG)
2. Goldman Sachs (GS)
3. Halliburton (HAL)
4. American Airlines (AAMRQ)
5. Bank of America (BAC)
6. Citigroup (NYSE: C)
7. BP (BP)
8. J.P. Morgan (JPM)
9. Wells Fargo (WFC)
10. Comcast (CMCSA)
Of the 10, the two that look most promising from an investing standpoint are Halliburton and AIG.
Halliburton provides services and products to the energy industry related to the exploration, development and production of oil and natural gas.
While domestic revenue remained relatively flat during the fourth quarter, Halliburton's international segment set new revenue records. The Middle East/Asia region increased revenue 14% to $1.2 billion, and its Europe and Africa divisions posted revenue increases of 8%. Overall, Halliburton's international operating margin improved to 17.6% from 14.6% in the prior quarter.
And the company recently made an interesting announcement...
Halliburton increased its quarterly dividend 39% to 12.5 cents a share and said it will resume "systematic" share buybacks. The company also stated that it wants future yearly cash dividends to represent at least 15% to 20% of net income. These goals imply a potential dividend increase of 30% to 35% next year.
Halliburton is trading at just above 10 times earnings, which still makes it a bargain relative to its competitors and the S&P 500.
Meanwhile, AIG, the most hated company according to the poll, is up 28% over the last year. AIG is an insurance company, and its reputation (and stock) dove during the financial crisis when the company was bailed out by the U.S. government.
Adding to the company's woes was a $4.4 billion loss in the fourth quarter of 2012 from insurance claims due to Hurricane Sandy.
However, there are signs that the company has finally turned the corner.
To begin with, the transfer of ownership from the federal government back to shareholders is complete. The company has downsized considerably, selling its Asian insurance subsidiaries. It has also announced the sale of the majority interest in its volatile aircraft leasing business. Both of these sales should help management focus on the company's core business.
A number of large institutional investors seem to believe the company is on the rebound and have been snapping up shares while the price is cheap.
According to the latest 13F filings, Lone Pine Capital bought 7 million shares last quarter. Wellington Management bought 15 million, and Orbis Holdings bought more than 20 million.
Yet in spite of this recent buying spree, the stock still trades at a 0.6 price-to-book ratio. Book value represents the total amount of equity that would be left over if the company liquidated all of its assets and repaid all of its liabilities. So right now you can buy AIG for 60 cents on the dollar.
Risks to Consider: While the current low price eliminates some risk, investors interested in AIG need to remember that unforeseeable events like Hurricane Sandy can have a devastating effect on insurance companies. Though the company's management team seems to be doing all it can to put the past behind it, there are lingering doubts as to whether AIG will ever be able to regain the size or status it enjoyed before the financial meltdown.
Halliburton is subject to fluctuations in commodity prices beyond its control. However, the energy renaissance in the U.S. is predicted to continue for at least the next decade. The company is expanding in China and Russia, and both regions present political risks.
Action to Take --> Sometimes bad news can make for good investments. Just because investor sentiment has turned against a company in the past doesn't necessarily mean the company isn't a good investment now. AIG and Halliburton may be "hated," but for investors hunting for bargains in today's expensive market, I believe both are worth a closer look.
- The 10 Most Hated Companies In America
- These Companies Could Buy Back up to 40% of Their Own Stock
- This Company Could Pay a 40% Dividend Yield
- Investment & Company Information