The single-letter ticker symbol. Only 26 are available, yet rarely do you hear investors talking about them. As recently as October 2007 there were only 16 single-letter stocks to buy.
Fast forward past the recession to today; there are 23 single-letter stocks. Only the letters J, U and W go unspoken. The most recent company choosing to trade under such rarefied conditions was in April 2013 when satellite services provider Intelsat SA (I) went public, raising $348 million to repay debt. Unfortunately for IPO investors it hasn’t done much since going public 15 months ago at $18 per share.
That doesn’t mean we can’t find any single-letter stocks to buy. With almost two dozen choices, I’m sure I can come up with three worthy of your consideration.
Single-Letter Stocks to Buy – Kellogg (K)
Kellogg (K) is my first choice of single-letter stocks to buy because it’s definitely a takeover target. Options trading for K stock in May was as high as it’s been in seven years on speculation that Berkshire Hathaway (BRK.B) or its partner, 3G Capital, would make an offer for the Michigan-based cereal maker.
What’s to like about Kellogg? Well, despite a cereal business that’s in decline, there are a few things investors can point to. Its Project K cost-cutting plan is expected to produce as much as $475 million in annual savings by 2018. With moves well underway including a July 28 announcement that it was closing a plant in Columbus, Georgia by the end of next year. Assuming the buyer agrees with the cost-cutting plan (it would be hard not to), the heavy lifting has already been done, making integration a far easier proposition.
New products are coming out in bunches. According to InvestorPlace writer William White, Kellogg introduced 34 new products in the most recent quarter alone. These new products should be able to offset some of the revenue lost due to softness in its traditional cereal market.
For the entire fiscal 2014, Kellogg expects to generate at least $1.1 billion in free cash flow with more to come once the cost-cutting is completed in 2018. If you tack on the expected annual savings of $475 million to its free cash flow along with some potential successes from new products like its On the Go Fun cereal pouches, it’s not inconceivable that free cash flow by 2018 could be as high as $1.7 billion or more, making any potential acquisition far more palatable.
With corn prices dropping, the time is right for someone to pounce.
Single-Letter Stocks to Buy – Ford (F)
Experts suggest that this July’s car sales will be the best since 2006. Ford (F) is expected to sell almost 213,000 cars in the U.S. this month — 10.2% higher year-over-year. New auto sales in 2014 are expected to hit levels not seen since before the recession, and that’s the kind of news that will keep pushing F stock higher.
Incoming Ford CEO Mark Fields must be happy with the news emanating from Detroit in recent months. Despite the recalls that are plaguing many car makers, the automotive industry hasn’t been this healthy in a long time.
S&P Capital IQ analyst Efraim Levy expects investments made by Ford on the F-150 and in China to pay dividends in 2015. He estimates 2015 earnings will hit $1.92 per share, implying a current stock price that’s trading at just nine times its 2015 earnings.
While Levy is definitely more enthusiastic about General Motors (GM), it’s safe to say Ford is one of the best single-letter stocks to buy for the long term.
Single-Letter Stocks to Buy – Loews (L)
Nothing good seems to be happening for Loews (L), the holding company run by the Tisch brothers these days.
First, Diamond Offshore Drilling (DO), a provider of contract offshore drilling which is 50.4% owned by Loews, announced Q2 results July 24 that were considerably worse than in the same period a year ago. Drillers are going through a tough spot right now, with falling demand for deepwater rigs expected to continue for at least the next year or more. However, it routinely issues a special dividend of 75 cents, which should be enough to keep investors interested in DO stock until it has a chance to turn the quarter.
In May, Loews announced that it was seeking strategic alternatives including an outright sale for HighMount Exploration & Production LLC, its 100%-owned producer of oil and natural gas whose assets Loews acquired in 2007 from Dominion Resources (D), ironically another single-letter ticker. Loews paid $4 billion seven years ago; today, those assets have a carrying value of $1.1 billion. Clearly, this has to be Loews’ biggest mistake in recent years.
On the plus side, it’s great to see the expansion that’s taking place at its hotel segment. (I have friends who frequently stay at their Montreal hotel and they always speak highly of the service.) In 2014 alone, Loews’ hotel segment has announced that it acquired the Graves 601 Hotel in Minneapolis, will acquire 556-room hotel in Chicago nearby O’Hare Airport, and will open a downtown Chicago location by February of next year. Watch for more moves in the future from Loews Hotels.
L stock has seriously underperformed the past five years, delivering an annualized total return of 6% — 10 percentage points worse the S&P 500. Historically, though, it has been a stellar performer. Reversion to the mean suggests its stock price woes can’t continue for much longer. If you are a contrarian, this is in my opinion one of the best stocks to buy, currently on the outs with investors.
As of this writing, Will Ashworth did not own a position in any of the aforementioned securities.