LONDON -- The FTSE 100 has risen by 25% over the last year, and many top shares are beginning to look quite expensive. I'm on the hunt for companies that still look cheap, based on their long-term earnings potential. To help me hunt down these bargains, I'm using a special version of the price-to-earnings ratio called the PE10, which is one of my favorite tools for value investing.
The PE10 compares the current share price with average earnings per share for the last 10 years. This lets you see whether a company looks cheap compared to its long-term earnings.
Today, I'm going to take a look at the PE10 of drinks giant Diageo (LSE: DGE ) (NYSE: DEO ) .
Is Diageo a buy?
Diageo has been one of the great big-cap growth stories of the last 10 years. Since 2003, its share price has grown by 179%, and its dividend has increased by 69%, giving the firm an army of loyal shareholders.
However, I'm concerned that the company's share price might have got slightly ahead of its earnings growth. Does the firm's PE10 suggest underlying value, or is Diageo ripe for rerating?
Top 10 Performing Companies To Own In Right Now: Hudson City Bancorp Inc.(HCBK)
Hudson City Bancorp, Inc. operates as the bank holding company for Hudson City Savings Bank that provides a range of retail banking services. It offers a range of deposit accounts, including passbook and statement savings accounts, interest-bearing transaction accounts, checking accounts, money market accounts, and time deposits, as well as IRA accounts and qualified retirement plans. The company?s loan portfolio primarily comprises one-to four-family first mortgage loans for residential properties; multi-family and commercial mortgage loans; construction loans; and consumer loans, such as fixed-rate second mortgage loans and home equity credit line loans, as well as collateralized passbook loans, overdraft protection loans, automobile loans, and secured and unsecured commercial lines of credit. As of December 31, 2009, it operated 95 branches located in 17 counties throughout the State of New Jersey; 10 branch offices in Westchester County, 9 branch offices in Suffolk Cou nty, 1 branch office each in Putnam and Rockland Counties, and 6 branch offices in Richmond County; and 9 branch offices in Fairfield County, Connecticut. The company was founded in 1868 and is based in Paramus, New Jersey.
Advisors' Opinion:- [By Dan Caplinger]
Beyond the Dow, Hudson City Bancorp (NASDAQ: HCBK ) has dropped more than 5% after the bank and its proposed acquirer, M&T Bank (NYSE: MTB ) , said there would be a delay in completing their merger. M&T, which has slipped almost 4%, cited regulatory concerns from the Federal Reserve over its bank secrecy and anti-money-laundering programs. Despite the two banks' plan to extend their agreement until the end of January 2014, they aren't sure the merger will be complete even by then. Shareholders will still vote on the deal later this month, but the delay has to be disconcerting for investors on both sides.
- [By Jon C. Ogg]
The M&T Bank Corp. (NYSE: MTB) and Hudson City Bancorp Inc. (NASDAQ: HCBK) transaction is the only pending deal of 2012 vintage due to various regulatory concerns. MTB currently has 9% short interest outstanding and PACW 15%. Another merger covered is the deal between Provident New York Bancorp (NASDAQ: PBNY) and Sterling Bancorp (NYSE: STL), and the balance are simply too small for us to warrant effort.
- [By Amanda Alix]
It was a long engagement, but the union between growth-oriented M&T Bank (NYSE: MTB ) and Hudson City Bancorp (NASDAQ: HCBK ) looks like it is definitely back on track.
- [By Lauren Pollock]
M&T Bank Corp.(MTB) and Hudson City Bancorp Inc.(HCBK) said they expect additional delays in completing their merger deal, and any action isn’t expected to occur until the latter half of 2014. “While all parties are disappointed that the transaction is delayed further, we are gratified that M&T continues to see the value in the Hudson City franchise,” said Hudson City CEO Ronald E. Hermance Jr.
5 Best Dividend Stocks To Invest In Right Now: H.J. Heinz Company (HNZ)
H. J. Heinz Company manufactures and markets food products for consumers, and foodservice and institutional customers in North America, Europe, the Asia Pacific, and internationally. The company primarily offers ketchup, condiments and sauces, frozen food, soups, beans and pasta meals, infant nutrition, and other food products. It sells its products through its sales organizations, independent brokers, agents, and distributors to chain, wholesale, cooperative, and independent grocery accounts; convenience stores; bakeries; pharmacies; mass merchants; club stores; foodservice distributors; and institutions, including hotels, restaurants, hospitals, health-care facilities, and government agencies. The company was founded in 1869 and is based in Pittsburgh, Pennsylvania.
Advisors' Opinion:- [By Matt Koppenheffer]
On negative implications of the H.J. Heinz� (NYSE: HNZ ) �deal.�A questioner wondered whether Berkshire's preferred position in the Heinz deal and the high price paid suggested that Buffett isn't optimistic about the returns available in the market. Buffett responded simply that that was "totally inaccurate." Munger later added on: "As you said, the report was totally wrong."
- [By Eric Volkman]
McGraw-Hill Financial's (NYSE: MHFI ) S&P Dow Jones Indices has brought in a pair of big-name stocks to replace issues on two of its signature products. After the close of trading on June 6, both the S&P 100 and the 500 will be home to General Motors (NYSE: GM ) . The stock replaces Heinz (NYSE: HNZ ) , which was recently acquired by a consortium led by Berkshire Hathaway (NYSE: BRK-B ) .
- [By Dan Carroll]
Pediatric nutritional products, in particular, are growing at a fast clip. The business grew worldwide sales by a whopping 20% in the quarter, strong growth for what's become a hot market around the world. Competition waits for Abbott, particularly in the Latin American market, where Heinz (NYSE: HNZ ) has particularly been successful in growing baby food sales in countries such as Mexico.
- [By Steve Symington]
10. Not including its equity holdings and recently acquired 50% stake in Heinz (NYSE: HNZ ) , Berkshire is made up of 56 distinct subsidiary businesses.
5 Best Dividend Stocks To Invest In Right Now: Johnson & Johnson(JNJ)
Johnson & Johnson engages in the research and development, manufacture, and sale of various products in the health care field worldwide. The company operates in three segments: Consumer, Pharmaceutical, and Medical Devices and Diagnostics. The Consumer segment provides products used in baby care, skin care, oral care, wound care, and women?s health care fields, as well as nutritional, over-the-counter pharmaceutical products, and wellness and prevention platforms under the brands of JOHNSON?S, AVEENO, CLEAN & CLEAR, JOHNSON?S Adult, NEUTROGENA, RoC, LUBRIDERM, DABAO, LISTERINE, REACH, BAND-AID, CAREFREE, STAYFREE, SPLENDA, TYLENOL, SUDAFED, ZYRTEC, MOTRIN IB, and PEPCID AC. The Pharmaceutical segment offers products in various therapeutic areas, such as anti-infective, antipsychotic, contraceptive, dermatology, gastrointestinal, hematology, immunology, neurology, oncology, pain management, and virology. Its principal products include REMICADE for the treatment of immune me diated inflammatory diseases; STELARA for the treatment of moderate to severe plaque psoriasis; SIMPONI, a treatment for adults with moderate to severe rheumatoid arthritis, psoriatic arthritis, and ankylosing spondylitis; VELCADE for the treatment of multiple myeloma; PREZISTA and INTELENCE for treating HIV/AIDS patients; NUCYNTA for moderate to severe acute pain; INVEGA SUSTENNAtm for the acute and maintenance treatment of schizophrenia in adults; RISPERDAL CONSTA for the management of bipolar I disorder and schizophrenia; and PROCRIT to stimulate red blood cell production. The Medical Devices and Diagnostics segment primarily offers circulatory disease management products; orthopaedic joint reconstruction, spinal care, and sports medicine products; surgical care, aesthetics, and women?s health products; blood glucose monitoring and insulin delivery products; professional diagnostic products; and disposable contact lenses. The company was founded in 1886 and is based in Ne w Brunswick, New Jersey.
Advisors' Opinion:- [By Alex Dumortier, CFA]
Johnson & Johnson doubles down on prostate
Meanwhile, Dow component Johnson & Johnson (NYSE: JNJ ) announced it will pay up to $1 billion for Aragon Pharmaceuticals. Aragon's flagship product is an experimental prostate cancer drug that helps patients whether or not their cancer has spread to other parts of the body. In terms of drug portfolio, the product fits in nicely with J&J's blockbuster drug Zytiga, which it obtained in another $1 billion acquisition, that of Cougar Biotechnology, in 2009.
5 Best Dividend Stocks To Invest In Right Now: NextEra Energy Inc. (NEE)
NextEra Energy, Inc., through its subsidiaries, engages in the generation, transmission, distribution, and sale of electric energy in the United States and Canada. As of December 31, 2010, NextEra Energy had approximately 43,000 mega watts of generating capacity. The company involves in the generation of renewable energy from wind and solar projects. It also generates electricity through natural gas, nuclear, oil and coal, and hydro power plants. The company serves approximately 8.7 million people through approximately 4.5 million customer accounts in the east and lower west coasts of Florida. In addition, it leases wholesale fiber-optic network capacity and dark fiber to telephone, wireless carriers, Internet, and other telecommunications companies. The company was formerly known as FPL Group, Inc. and changed its name to NextEra Energy, Inc. in May 2010. NextEra Energy, Inc. was founded in 1984 and is headquartered in Juno Beach, Florida.
Advisors' Opinion:- [By Dan Caplinger]
What's arguably more troubling is the relative lack of a firm growth strategy for Exelon. Rival NextEra Energy (NYSE: NEE ) expects to spend an average of almost $6 billion per year over the next four years on projects designed to increase earnings and therefore dividend payout potential, while Dominion (NYSE: D ) is aiming to produce 5%-6% earnings growth per year by spending $3 billion annually on new utility projects. By contrast, Exelon's spending on solar is relatively small and its investment on wind is almost nonexistent.
- [By David Dittman]
Answer: AES Corp (NYSE: AES), NextEra Energy Inc (NYSE: NEE) and NRG Energy Inc (NYSE: NRG) are all trading below or within a reasonable range of my current buy-under targets and are well placed to build wealth for the medium and long terms.
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