The Zacks Analyst Blog Highlights: Lafarge, Capital One Financial, Volkswagen, ASM International and Fannie Mae

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Jun 21, 2011, 09:30 ET

CHICAGO, June 21, 2011 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Lafarge (LAFGY), Capital One Financial (NYSE: COF), Volkswagen (OTC: VLKAY), ASM International (Nasdaq: ASMI) and Fannie Mae (OTC: FNMA).

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Here are highlights from Monday's Analyst Blog:

The Cheap "Ones"

I looked for all the firms with market capitalizations over $1 billion that have Zacks #1 Ranks (Strong Buy) that also have single digit P/Es based on current expectations for both this year and next. I then applied less stringent requirements based on other key valuation criteria.

The firms might not be super cheap based on non-earnings criteria, but they sure are not exorbitantly expensive. They have to pay at least a nominal dividend, be selling for less than 9x cash flow, 1.5x sales and 2.0x book value.

Here are some of the highlights of the four with the lowest P/Es based on this year's earnings. Prices are based on the close 6/20, while the "Price to's" are based on the 6/17 close:

Lafarge (LAFGY), $15.19) is one of the largest producers of cement and gypsum wallboard in the world. While construction has been very weak here in the U.S., other parts of the world continue to build. Eventually building will pick up here as well. This is a cheap stock based on all five major valuation criteria.

A P/E of 3 for this year would seem to indicate that the market is expecting those earnings to fall precipitously. However, the P/E based on 2012 earnings is even lower, as the consensus is expecting earnings that are 12.5% higher in 2012 than in 2012. Just as a word of warning, the balance sheet on this one is more than a bit suspect, as the company has a very high debt level.

Capital One Financial (NYSE: COF), $49.60). What's in your wallet? Well there could be a lot more if you invest in COF. Consumers have gradually been getting their debt under control, and credit card delinquencies have started to trend down, although they still remain at very high levels.

Earnings are expected to decline next year relative to this one, but even based on 2012 earnings, the P/E is just 8.3x. The key reason for the decline is the cut in debit card fees that banks can charge. That will be a one-time -- but permanent -- decline, not a continuous erosion in earnings power.

This is also a very cheap sock based on book value, but as with all the big banks, as long as they are allowed to mark their assets to models rather than to market, there will be a question to the true value of the assets of the firm.

Volkswagen (OTC: VLKAY), $34.75) might not have a huge market share here in the U.S., but it is the third largest auto company in the world. It sells not only under the VW brand but also under Audi and a few super-high-end luxury brands such as Bentley and Lamborghini. I would note that most of the auto industry looks cheap, but few have the sort of estimate momentum that VW has.

ASM International (Nasdaq: ASMI), $35.79) is a Dutch semi-equipment company, making the machines that make the basic building blocks, semiconductors, of the modern economy. It sells for less than seven times next year's earnings and just over one times sales despite boasting net margins of over 10%. It also boasts a strong balance sheet, with cash net of long-term debt at 22% of its total value.

As always, a screen should be only the first step in your investment investigation. These stocks though have the very appealing combination of being extremely cheap on a statistical basis, and are starting to get some estimate momentum behind them. Historically that has often proved to be the path to some very large gains.

Fannie Spurs Foreclosure Sales

Observing a downswing in foreclosed property sales, Fannie Mae (OTC: FNMA) is trying to lure buyers with attractive incentives. Fannie Mae started providing incentives to foreclosed home buyers in 2010, but it will now enhance its offers to increase sales of foreclosed homes it owns.

Though the incentives are expected to bring some relief for Fannie Mae by reducing its burden related to foreclosed homes to some extent, its success is still in doubt as the regulators have still not been able to settle critical deficiencies related to the foreclosure process.

T&C of Incentives

If buyers purchase a foreclosed home held by Fannie Mae on or before October 31, the company will give up to 3.5% of the property's sale price as incentive, which would help buyers pay off closing costs.

Also, the real estate agents will get bonuses of up to $1,200 for bringing a prospective buyer to the company.

Additionally, Fannie Mae might provide mortgage and renovation financing to buyers of its foreclosed properties. Buyers will get the opportunity to avail of this financing with down payment as low as 3%.

However, those seeking to buy these properties for investments purposes and not to live in will not be eligible for these offers.

Trend of Foreclosed Home Sales

Last month, data released by RealtyTrac, the leading online marketplace of foreclosure properties, showed that the total number of foreclosed properties sold in the first quarter of 2011 was 158,434, down 16% from the prior quarter and 36% from the prior-year quarter. Also, the number is significantly lower that 350,000 foreclosed properties sold in the first quarter of 2009.

RealtyTrac's report stated that if sale of foreclosed homes continues at the current rate, it would take nearly three years to clear about 2 million properties that are currently at some stage of foreclosure. The pace of the foreclosures has slowed down considerably in the recent months as the banks are to iron our issues related to their faulty paperwork that resulted in the foreclosure mess.

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