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Trading Ideas: 4 TV Revolution Stocks With Huge Discounts To Growth Rates

 June 06, 2012 01:13 PM

(By Rich Beiglmeier) Yesterday, iStock alerted our readers to the TV revolution that's about to explode in the next 18-months. We highlighted a list of more than 20 companies we believe are marching on the front lines, leading the charge and could ring up fat profits for investors.
Today, we are following up and picking the names we feel offer the most value at their current prices.
First up, we ran each company through our checklist of fundamental criteria. Nobody wants to pay too much for potential; a lesson all too fresh, thanks to Facebook, Inc. (FB).
iStock prefers for our picks to be profitable as making money is every company's objective. We'll make exceptions provided analysts believe the crossover into the black will occur within the next year, and the top line is expanding with the bottom line.
From there, identifying growth rate discounts relative to P/E is the next step. In other words, if ABC Corporation is forecast to grow earnings per share by 20%, a forward P/E of 20 or less is the target.
Management effectiveness is another key focus. It can be measured by margins, return on investment, equity, and assets; the higher the better for each of these metrics.
iStock can craft a portfolio of stocks using these brief fundamental guidelines (plus a few more) that are likely to benefit from TV's transformation. Obviously, no Holy Grail of measuring sticks exists, but investors can be confident the following companies are fairly priced, effectively managed, profitable, or soon to be, and growing.
Our four favorite iTV stocks based on P/E to growth discount include:
Polycom, Inc. (PLCM)
The company allows its customers to conduct video, voice, data, and Web communications. Analysts project that PLCM will grow earnings by 22% in the next year, with a forward P/E 10.45. The industry average P/E is 17.
If Polycom hits their 2013 target of $1.11 per share in earnings, at the industry P/E, PLCM would trade for $18.87 per share, a 62% gain from its current price of $11.68.
Juniper Networks, Inc. (JNPR)
Wall Street says Juniper will watch profits rock by 39% in the next 18 months. Meanwhile, the network infrastructure provider trades at less than 15 times 2013's consensus number of $1.17.
Once again, at the industry average P/E of 22.93 (still a discount from 39% growth), Juniper Networks could flirt with $26.83, more than 50% higher than today's price. In case you think that's crazy talk, JNPR's 52-week high is $33.11.
Microsoft Corporation (MSFT)
No need to tell you what MSFT does. Believe it or not, Bill Gates could see his MSFT net worth jump 40% by New Year's Eve 2013; some people have all the luck.
The Street believes Windows 8 will help the giant growth profits by 13.90% with an eps estimate of $3.06. Mr. Softy's 2013 P/E is 9.48. Trade up to its projected profit growth rate, and Microsoft shares sport a $41 price tag.
Rovi Corporation (ROVI)
Earnings for the multimedia company that provides online streaming video technology are predicted to rise to $3 in 2013 from $2.52 in 2012. That's a 19% increase and more than double ROVI's forward P/E of 8.1.
At a 1:1 P/E to growth ratio, Rovi Corporation could trade up to $57, slightly below its 52-week high of 59.31 and 134% higher than ROVI is today.
Even if our projections are only half or a third right, this quartet of TV revolution stocks could reward investors handsomely in the next 18 months.


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