EOG

A focus list of buys and sells for our readers to use as a starting point when looking to make changes to portfolio. This list contains attractive and unattractive stocks from every major sector excluding financials. AFG's buy and sell lists have proven through time to provide a significant spread between the buys and sells helping you to identify winners and avoid potential torpedoes.

The Applied Finance Group (AFG) has a disciplined approach for identifying companies that are expected to outperform and underperform the market by using proprietary metrics and measurements that have been tested and proven through time. Because AFG’s research is fundamentally derived, AFG’s quantitative analysis spans across growth and value stocks, all sectors, industries, and market caps with over 20,000 covered securities globally. Using AFG’s proprietary criteria, AFG publishes a monthly buy/sell list to provide clients with a refined focused list as a starting point for potential investments. AFG clients can then use Value Expectations to further analyze the expectations embedded in a security’s price and to build out their own model to refine an intrinsic value of a company based on their own expectations.

When searching for Large-Cap ideas, AFG’s Buy/Sell list is a good starting place as it has proven to create a significant spread in performance between companies that come up on AFG’s buy list and those on the sell list. Further focusing on companies based on AFG’s proprietary screening criteria (Economic Margin, valuation, quality of earnings, and management’s ability to create shareholder wealth) will save investors time in their research process.  The result is a target group of stocks that can help you outperform as well as identify potential torpedoes to avoid in your portfolios.

Below is a list of attractive and unattractive companies in the S&P 500 from each major sector (as defined by AFG).  It serves as a focus list of companies for investors to begin with as they meet AFG’s criteria.  They are more likely to outperform their sector peers and the S&P 500, the benchmark that AFG’s clients most often compare themselves with.

AFG Investment Opportunity Rank within Sector Ticker Name Sector Valuation Signal EM Change Signal Attractive S&P 500 companies from each AFG Sector (NYSE: ARG) AIRGAS INC Basic Material Attractive Attractive Positive (NYSE: SEE) SEALED AIR CORP Basic Material Attractive Attractive Positive (NYSE: WAT) WATERS CORP Capital Goods Attractive Attractive Positive (NYSE: DO) DIAMOND OFFSHRE DRILLING Capital Goods Attractive Attractive Positive (NYSE: HAS) HASBRO INC Consumer Durable Attractive Attractive Positive (NYSE: CL) COLGATE-PALMOLIVE CO Consumer Non Durable Attractive Attractive Positive (NYSE: TAP) MOLSON COORS BREWING CLB Consumer Non Durable Attractive Attractive Positive (NYSE: MCD) MCDONALD'S CORP Consumer Services Attractive Attractive Positive (NYSE: MCD) CVS CAREMARK CORP Consumer Services Attractive Attractive Positive (NYSE: NEM) NEWMONT MINING CORP Energy and Extraction Attractive Attractive Positive (NASDAQ:CEPH)  CEPHALON INC Health Attractive Attractive Positive (NYSE:TMO)  THERMO FISHER SCIENTIFIC Health Attractive Attractive Positive (NYSE:S)  SPRINT NEXTEL CORP Technology Attractive Attractive Positive (NASDAQ:SYMC)  SYMANTEC CORP Technology Attractive Attractive Positive (NYSE:PEG)  PUBLIC SVC ENTPRS GROUP Utilities Attractive Attractive Positive (NYSE:D) DOMINION RESOURCES VA Utilities Attractive Attractive Positive Unattractive S&P 500 companies from each AFG Sector (NYSE:PH) PARKER HANNIFIN CORP Basic Material Unattractive Unattractive Negative (NYSE:X) UNITED STATES STEEL CORP Basic Material Unattractive Unattractive Negative (NYSE:ETN)  EATON CORP Capital Goods Unattractive Unattractive Negative (NYSE:SWK)  STANLEY WORKS THE Capital Goods Unattractive Unattractive Negative (NYSE:IGT) INTERNAT GAME TECHNOLOGY Consumer Durable Unattractive Unattractive Negative (NYSE:FO) FORTUNE BRANDS INC Consumer Durable Unattractive Unattractive Negative (NYSE:RL)  POLO RALPH LAUREN CORP Consumer Non Durable Unattractive Unattractive Negative (NYSE:TSN)  TYSON FOODS INC Consumer Non Durable Unattractive Unattractive Negative (NYSE:MAR)  MARRIOTT INTERNAT INC A Consumer Services Unattractive Unattractive Negative (NYSE:MWW)  MONSTER WORLDWIDE INC Consumer Services Unattractive Unattractive Negative (NYSE:BTU) PEABODY ENERGY CORP Energy and Extraction Unattractive Unattractive Negative (NYSE:EOG)  EOG RESOURCES INC Energy and Extraction Unattractive Unattractive Negative (NASDAQ:SIAL) SIGMA-ALDRICH CORP Health Unattractive Unattractive Negative (NASDAQ:ISRG)  INTUITIVE SURGICAL INC Health Unattractive Unattractive Negative (NYSE:MU)  MICRON TECHNOLOGY INC Technology Unattractive Unattractive Negative (NASDAQ:CIEN)  CIENA CORP Technology Unattractive Unattractive Negative (NYSE:EQT)  EQT CORP Utilities Unattractive Unattractive Negative (NYSE:NU)  NORTHEAST UTILITIES Utilities Unattractive Unattractive Negative

Source: EconomicMargin.com

AFG's Valuation Metric – Measures the percent to target (deviation between a stock’s current trading price and its AFG current default target price). To derive the intrinsic value of a firm, AFG uses its proprietary Valuation Model (modified discounted cash flow model).

Economic Margin - A corporate performance measurement that addresses the gaps in GAAP, eliminating distortions caused by accounting policies to measure what a company is truly earning above or below their cost of capital.

Management Quality – Assesses management’s ability to make wealth creating decisions.

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Listed below are the companies in the Energy & Extraction sector within the S&P 500 Index, ranked in order of valuation attractiveness. Currently, the Energy & Extraction sector has the highest median Value Score of all sectors according The Applied Finance Group’s April 2009 Monthly Market Review and looks to be trading at a significant discount relative to its historic valuation.

All Energy Companies (S&P 500) Ranked By Valuation Attractiveness

Energy Sector - Relative Valuation Chart

The graph above shows the median percentage upside for the Energy sector relative to the overall market across time. Values greater than 1 indicate the sector is more undervalued than the market, while values less than 1 indicate the opposite. The red line identifies the historical median value to provide a basis to understand valuation levels relative to historic norms. This example illustrates that the median Energy company is undervalued relative to the market currently and has been trading at a significant discount to its historic relative valuation, indicating a potentially attractive opportunity.

 

Nearly all of the biggest return earning companies in the S&P 500 are firms that have been beaten up over the past few months but have bounced back to provide the biggest return in the entire index for the month of December. These firms have ended 2008 on a high note and move into 2009 with what they hope to be sustainable momentum.

The list of companies in the S&P 500 with the worst returns in December had also been trending downward for the past few months but were unable to muster a year-end turnaround as those on the other list had been able accomplish. Many of the firms on this list have something to do with oil, as their stock prices have been highly correlated with the falling price of oil.

Compare the sales growth priced-in to justify the current stock price (VE Sales Growth), to what the company has been able to deliver the past 5 years in revenue growth (5 Year Median Sales Growth), to see which companies have reasonable expectations of achieving the Sales Growth priced-in. Companies with low expectations relative to what they have been able to achieve are more likely to out-perform.

 

Sales Growth Expectations for the Highest Return Companies (S&P 500) - December

**denotes only 2 years historical sales growth available (2 year median used)

 

Sales Growth Expectations for the Lowest Return Companies (S&P 500) - December

 

VE Sales Growth Calculated for these firms on 12/26/08.