Growth, Income or Value? These 3 Stocks Have it All

During the past half century, the financial media has tried to stay abreast of ever-changing investor interest. In the 1950s and 1960s, that meant a deep emphasis on value investing, as investors searched for stocks that looked like great bargains in relation to their balance sheet strength. In the 1970s, the focus shifted to stocks with high-dividend yields in a bid to stay ahead of rising inflation. In the 1980s, 1990s and the aughts, growth investing was the name of the game, though more recently, dividend-paying stocks have shown renewed popularity.

What’s next? Perhaps it’s wisest to focus on stocks that have all of these characteristics. So I went in search of stocks that do just that:

  • Trade below book value
  • Have a tradition of rising dividends
  • Are expected to boost sales and profits in 2013.

While dozens of stocks meet these criteria, only a few stand out as especially solid values. Here they are…

1. Bunge (NYSE: BG)
This stock trades at 89% of book value, has boosted its dividend every year for the past decade (an average 10% hike), and is expected to boost sales and profits at least 6% in 2012 and again in 2013. Shares currently trade for around nine times next year’s profits.

I profiled this stock back in July as a possible beneficiary of our nation’s current drought and I noted that analysts at Citigroup expected Bunge to subsequently report a better-than-expected set of second-quarter profits. The stock actually missed the consensus forecast, but has managed to rise anyway in anticipation of an improving 2013 outlook, when analysts expect earnings-per-share (EPS) to rise by 15% to $5.66.
Analysts at Citigroup see earnings topping $8 per share by 2014, and the stock continuing its upward move toward their $95 price target, which is 38% above current levels.

2. Principal Financial Group (NYSE: PFG)
This financial services stock, which trades for 89% of book value and eight times projected 2013 profits, is on track for its fifth straight year of rising dividends as it checks off another box: Stock buybacks. The company has already bought back $500 million in stock this year with plans to push that figure to $800 million.#-ad_banner-#

Buybacks are a sure-fire way of enabling per-share profits to rise faster than sales. Principal is expected to boost revenue around 6% in 2013 to $9.2 billion, though earnings are expected to rise a more robust 18% to $3.34 per share, according to consensus forecasts.

The buybacks are likely to shrink the share count around 8%, and coupled with the current 3% dividend yield, means the company’s return to shareholders equates to 11%. As a general rule of thumb, firms like Principal Financial should look to place greater emphasis on buybacks while shares trade below book value, and a greater emphasis on dividends when shares trade above book value, as “below book” buybacks can magnify the earnings per share gains more quickly.

3. Cliffs Natural Resource (NYSE: CLF)
Late this past week, my colleague Alan Knuckman took note of an intriguing technical set-up for this iron ore producer and, like clockwork, this stock has made a nice upward move ever since.

Yet this stock also shows solid fundamental support as it trades at 93% of book value at around seven times projected 2013 profits. The key factor behind its recent gains is a better-than-expected report of iron-ore pricing on the spot market. Indeed, you always want to catch commodity stocks when underlying pricing is strengthening, not weakening.

Cliffs had to cut its dividend — from 35 cents a share in 2008 to 26 cents a share in 2009 — as industry conditions slumped. The dividend is now getting a lot more attention.

Recent hikes have pushed the payout above $2 a share, which equates to a current yield of roughly 6.5%.

Risks to Consider: If the economy slips into recession in 2013, then these stocks may be hard-pressed to keep hiking dividends.

Action to Take –>  These aren’t the sexiest stocks on the market, but they all sport characteristics that any investor should love: growth momentum, solid dividends and dirt-cheap valuations. Any one of these is worth considering for your portfolio.