What follows is a list of companies that have betas greater than 1.5, indicating high volatility. They cover a variety of different industries: automobiles, financials, office equipment, and advertising. Given uncertainty in both the capital markets and broader macroeconomy, analysts are hesitant about financials. Accordingly, Morgan Stanley (MS) is the only one of these four that is rated below a "buy".
Ford Motor (F)
Ford is rated a "buy" on the Street and trades at a respective 7.7x and 8.2x past and forward earnings while offering a dividend yield of 1.6%. It has a beta of 2.4.
Consensus estimates for Ford's EPS forecast that it will decline by 3.7% to $1.84 in 2011, decline by 15.8% in 2012, and then grow by 17.4% in 2013. Assuming a multiple of 10x and a conservative 2012 EPS of $1.48, the rough intrinsic value of the stock is $14.18, implying 15.7% upside.
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Morgan Stanley
Morgan Stanley is rated a "hold" on the Street and trades at a respective 15x and 7.8x past and forward earnings while offering a dividend yield of 1.1%. It has a beta of 1.6.
Consensus estimates for Morgan Stanley's EPS forecast that it will grow by 51.6% to $1.91 in 2012 and then by 22% and 19.3% more in the following two years. Assuming a multiple of 9.5x and a conservative 2012 EPS of $1.98, the rough intrinsic value of the stock is $18.81, implying 3.4% upside.
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Xerox (XRX)
Xerox is rated a "buy" on the Street and trades at a respective 10.6x and 6.8x past and forward earnings while offering a dividend yield of 2.2%. It has a beta of 1.6.
Consensus estimates for Xerox's EPS forecast that it will grow by 7.4% to $1.16 in 2012, grow by 14.7% in 2013, and then hold flat in 2014. Assuming the multiple holds steady and a conservative 2013 EPS of $1.25, the rough intrinsic value of the stock is $13.25, implying a staggering 68.8% upside.
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Interpublic (IPG)
Interpublic is rated a "buy" on the Street and trades at a respective 12.1x and 13.5x past and forward earnings while offering a dividend yield of 2.3%. It has a beta of 1.8.
Consensus estimates for Interpublic's EPS forecast that it will grow by 38.3% to $0.65 in 2011 and then by 15.4% and 24% more in the following two years. Assuming a multiple of 14.3x and a conservative 2012 EPS of $0.71, the stock price is roughly at intrinsic value. Modeling a CAGR of 25.5% for EPS over the next three years and then discounting backwards by a WACC of 9% yields a fair value figure of $11.60, implying 13.2% upside.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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