Buy Novartis: A Dividend Gem In The Pharmaceutical Industry

Novartis (NVS) is the most valuable healthcare brand in Europe and the third largest in the world. The company specializes in research, development and manufacturing of a wide array of healthcare products, with pharmaceuticals contributing the largest share. NVS has five segments: Pharmaceuticals for patent-protected prescription medicines; Alcon (surgical, ophthalmic pharmaceutical and vision care products); Sandoz for generic pharmaceuticals; Vaccines and Diagnostics; and Consumer for OTC and animal health.

The stock is currently trading at 11x its forward earnings; analysts estimate a mean price target of $65. We are particularly optimistic about NVS's strong portfolio of drugs and a rich pipeline. Also worth mentioning is the fact that Novartis is aware of the competition from generics once patent for its products expires and is ready to counter the threat through its Sandoz division focused on the development of generics.
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Avoid PepsiCo: A Story Of Low Grow, High Competition

PepsiCo (PEP) is the largest food and beverages business in North America and second largest in the world. Coca Cola (KO) - the company's main competitor holds the number one position in the industry. PepsiCo has a $106 billion market capitalization and operates in almost 200 countries. We recommend a neutral rating on Pepsi as KO offers better growth prospects than PepsiCo.

PepsiCo has a forward P/E of 16x, which is on the lower end as compared to KO and higher than DPS. However, PepsiCo's PEG of 4 reflects that the company offers an expensive growth as compared to its competitors KO and DPS. PepsiCo has a lower growth rate of 4.2% per annum for the next five years as compared to 7.75% of its competitors.
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Buy Citigroup For Strong Capital Position And Attractive Valuations

Citigroup has attractive relative valuations compared to its peers in the U.S. money center banks sector. The stock that has seen over 37% appreciation in price is trading at a 43% discount to its book value. This is compared to a 53% discount and a 20% premium for Bank of America and Wells Fargo. Using a book value multiple of 0.68 times, we arrive at a target price of $43.2 for a stock that is currently trading at $36.1. This gives investors an upside potential of 20%. The consensus mean price target is $42.9.

In conclusion, we believe the bank could face a significant risk if the economic recovery in Asia doesn't pick up. However, the bank has strong fundamentals and attractive valuations compared to its peers. Therefore, we reiterate our buy rating on the Citigroup. Find more here.

Buy Cisco Systems: Things Will Only Get Better For This Cash Rich Technology Giant

Cisco has announced that it has finalized its acquisition of Meraki Inc. The company has paid $1.2 billion in cash and retention based incentives for the acquisition and expects the deal to be closed in 2Q2013. Meraki is a US based company that is the first cloud based network infrastructure company in the world. It provides cloud-managed access solutions including access switches, WiFi, security appliances and mobile device management. The company has more than 18,000 customers, spread over 145 countries, with clients across a diverse range of sectors such as healthcare, industry, government and so on.

Smartphones and handheld devices are increasing data demand and CSCO is one of the primary beneficiaries of this revolution. Going forward, we believe that growth will remain stable for CSCO due to increased penetration by smartphones/tablets in China and India. Read More

NRG Energy Driving Growth From Texas

NRG Energy (NRG) recently announced its earnings for third quarter 2012. We are bullish on the stock because of its expected synergies, cheap valuations and strong liquidity/cash position for the company. The company has been working to improve its efficiency and cost savings.

For the first time in August, NRG declared its quarterly dividend of $0.09 per share, a dividend yield of 1.7%. With its FCF expected to be $900 - $950 million for 2012, free cash flow yield turns out to be 19%, which is a healthy sign and indicates that dividends would be sustained without any problem. If we look at the liquidity position of the company, it experienced an improvement of 30%. Total current liquidity for the 3Q 2012 was $2.71 billion up from $2.07 billion in 3Q 2011.

NRG has cheap valuations on a comparable basis. It has a price to book of 0.6x, less than that of its competitors. Its PEG of 2.6 also reflects that it offers cheap growth as compared to its competitors, TAC and CPN. NRG also has a strong balance sheet, evident by its debt to equity of 140% as compared to AES' 215% and CPN's 260%. Find more.

Navistar Addresses Investors' Concerns

Analysts have recently turned in favor of Navistar (NAV), the truck manufacturer, after the company made a secondary offering that has addressed some of the questions regarding liquidity. Also, the street seems to be excited about the management's transition plan which is now more attainable after the improved liquidity status. There are 5-6 important catalysts that are expected to move the stock such as initiation of Cummins (CMI) manufactured engines in January, their EPA approval, reduction in engine losses, realization of savings through the cost-cutting program and improvement in truck net price realization. It becomes clear why Baird has recently upgraded NAV from Neutral to Outperform.

The stock was recently upgraded by Baird due to its cheap valuations. Baird has raised the price target from $20 to $30. The company's earnings are expected to grow by 5% per annum for the next five years. We are bullish on the stock as most of the investor concerns have been addressed by the company's management. Read more

Potash: 2013 The Year Of Demand Recovery

The recent figures by Potash Corporation of Saskatchewan (POT) may have come as a surprise to analysts but we have been saying it all along that we expect demand to rebound in 2013, particularly once contracts with India and China are settled. The fundamentals for the industry remain strong. We have a bullish rating on POT for long-term investors.

Potash is trading at a forward P/E of 11. It has a dividend yield of 2.2 percent compared to Mosaic's dividend yield of 2 percent. Both POT and MOS are down YTD, POT by 14 percent and MOS by 6.6 percent. The earnings growth rate for MOS is 8 percent compared to 2.6 percent for POT. Read more