Although sales growth is now moderating, that
leverage should remain in effect, so a modest jump in sales in 2013 should boost
earnings north of $2.50 per share.
Trading at around $11 means this stock trades for less than five times projected 2013 profits. Analysts at Citigroup expect the stock to move up to $21, because "
shares are meaningfully undervalued versus the company's present/future earnings power and strong global franchise." They expect Goodyear to garner hefty returns on its capital base: return on equity exceeded 70% in 2011, should top 50% this year, and exceed 40% in 2014. That high rate should help boost
book value from $3.07 a share this year to $11 a share by 2014 (where the stock price sits now), according to Citigroup.
2. Hewlett-Packard (NYSE: HPQ)
There is no such thing as a quick
turnaround. Any company that has been losing its focus for several years needs several quarters -- or more -- to get back on track. Yet investors are already losing patience with former
eBay (Nasdaq: EBAY)CEO Meg Whitman, who was brought in last summer to lead a turnaround at Hewlett-Packard.
Investors had been hoping that Whitman's first moves would quickly lead to improving results. So when she recently discussed her turnaround plans and the fact that they will modestly dampen profits in the near-term, investors were pretty disappointed, pushing shares down to below where they were when she first came in.
Yet her strategy looks quite sound, though. She intends to streamline operations by standardizing products, as well as optimize the supply chain and automate more production processes. She also plans to invest the resources to regain market leadership in some segments such as security and enterprisewide IT management. She won't succeed on all fronts, but investors should be heartened by a management team that has a proven track record and a plan to play offense and not defense.
Even with modestly lowered 2012 and 2013 profit assumptions, this stock is still remarkably cheap, trading at less than eight times fiscal (October) 2012 profits and just seven times projected fiscal 2013 profits.