In most cases, companies trading below their historical average P/E’s are solid value plays, while those with above-average earnings multiples are best left to your less prepared peers. Without further ado, here’s a quick look at some of the market’s cheapest companies according to P/E ratios. While it is never a good idea to take blind faith in all stocks that meet this sort of criteria, the following analysis can provide a starting point for your own individual research.

Wells Fargo & Co (NYSE: WFC)

In 2012 thus far, Wells Fargo has generated a splendid return of 27.0%, outpacing the financial services sector (15.1%), and competitors like JP Morgan Chase (NYSE: JPM) at 18.2%, and Citigroup (NYSE: C) at 21.9%. Despite this advantage, Wells Fargo is actually trading at a paltry P/E ratio of 11.6X, below both the industry average (12.8X), and the stock’s own 5-year (18.8X) and 10-year (16.8X) historical averages. With a 5-year forecasted EPS growth (9.0%) more than four times Wells Fargo’s average over the past half-decade (2.7%), it’s hard to understand why the markets aren’t valuing the banking giant at its full worth.

The Street is forecasting yearly earnings of $3.32 by the end of 2012, and if Wells Fargo hits this mark, fairly valued shares of WFC can eclipse $60 by next summer. The stock currently trades in the $35 range, making a one-year appreciation of more than 70% a real possibility. WealthLift’s Sentiment Index rates Wells Fargo as a strong buy, with 85.71% of the community’s investors placing an “overperform” rating on the stock.

ConocoPhillips (NYSE: COP)

As mentioned in this article, ConocoPhillips spun off Phillips 66 (NYSE: PSX), its downstream oil business, into a separate entity earlier this year. In the time since this move, shares of COP have remained relatively flat, as a general economic malaise has sheathed the company with lower than normal oil prices and the ever-present Eurozone fears. Fortunately for value investors, this macro-created stagnancy has presented a buying opportunity.

The company currently trades at a P/E ratio of 6.6X, below its industry’s average (9.4X), and competitors like Apache Corp. (NYSE: APA) at 11.1X, and Marathon Oil (NYSE: MRO) at 11.5X. Moreover, ConocoPhillips’ earnings are also trading below their 5-year (8.1X) and 10-year (10.4X) historical averages. In fact, over the past half-decade, they’ve traditionally traded at a 38% discount to those of the S&P 500. This year, they are much cheaper, trading at a 56% discount.

Now, the bears will cry that muted EPS growth is on the horizon, as 2013 analyst estimates only predict bottom line expansion in the 1-2% range, but the bottom line is this: even if ConocoPhillips’ earnings remained stagnant over the next 12 months, fairly valued shares would flirt with $60.

Seeing as they currently trade in the $56 range, any potential appreciation wouldn’t be earth shattering, but still useful to anyone’s portfolio. WealthLift’s Sentiment Index seems to agree, as the community’s users are rating ConocoPhillips as a strong buy, with a positive rating of 89.47%. 

For more trading ideas in today’s rough and tumble market environment, checkout WealthLift INSIDER; you’ll be glad you did.

Disclosure: The author has no holdings in the stocks mentioned in this article and has no plans to initiate any positions within the next 72 hours.  He does, however, have the intention of rating these stocks on WealthLift.com, a social media website where investment ideas are shared openly and free.

Now, it’s also useful to look at which stocks are favorites of the WealthLift community; we’ll designate these as stocks with a rating of 90 or higher.  Below are five stocks that meet this requirement.

Note: all premiums/discounts are compared to 5-year historical averages, expect for Phillips 66, which is compared to industry averages due to its spin-off in April 2012.

The Coca-Cola Company (NYSE: KO)

WealthLift Sentiment: 91.53

            YTD Return: 7.22%

Price-to-Earnings Premium: +5.6%

Price-to-Book Discount: -3.7%

Price-to-Cash Flow Premium: +4.2%

Annual EPS Growth Past 5 years: 11.3%

Annual EPS Growth Next Five years (est.): 7.5%

WealthLift Target Price (1-year ahead): $40.75

Phillips 66 (NYSE: PSX)

WealthLift Sentiment: 90.91

            YTD Return: 22.8%

Price-to-Earnings Discount: -30.4%

Price-to-Book Discount: -17.7%

Price-to-Cash Flow Discount: -13.3%

Annual EPS Growth Past 5 years: n/a

Annual EPS Growth Next Five years (est.): 6.0%

WealthLift Target Price (1-year ahead): $63.28

Time Warner Inc. (NYSE: TWX)

WealthLift Sentiment: 92.31

            YTD Return: 16.9%

Price-to-Earnings Premium: +40.4%

Price-to-Book Premium: +30.0%

Price-to-Cash Flow Premium: +26.6%

Annual EPS Growth Past 5 years: -5.5%

Annual EPS Growth Next Five years (est.): 12.0%

WealthLift Target Price (1-year ahead): $41.61

China Mobile Ltd. (NYSE: CHL)

WealthLift Sentiment: 100.00

YTD Return: 7.8%

Price-to-Earnings Discount: -28.2%

Price-to-Book Discount: -39.4%

Price-to-Cash Flow Premium: +1.7%

Annual EPS Growth Past 5 years: 13.7%

Annual EPS Growth Next Five years (est.): -0.9%

WealthLift Target Price (1-year ahead): $70.92

Walt Disney Co. (NYSE: DIS)

WealthLift Sentiment: 91.49

YTD Return: 35.4%

Price-to-Earnings Premium: +8.6%

Price-to-Book Premium: +29.4%

Price-to-Cash Flow Premium: +2.9%

Annual EPS Growth Past 5 years: 9.5%

Annual EPS Growth Next Five years (est.): 13.0%

WealthLift Target Price (1-year ahead): $53.01

For more trading ideas, check out WealthLift’s INSIDER blog today; you’ll be glad you did.

Disclosure: The author has no holdings in the stocks mentioned in this article and has no plans to initiate any positions within the next 72 hours.  He does, however, have the intention of rating these stocks on WealthLift.com, a social media website where investment ideas are shared openly and free.

Jake Mann is a Finance Editor at WealthLift.com, having recently graduated Illinois Wesleyan University with a double major in Economics and Business Administration. In his spare time, Jake enjoys playing guitar, partaking in good ‘ole fantasy baseball, and being an alumni of Tau Kappa Epsilon.

1) Blizzard bans Iran.  Last week, Activision Blizzard (NASDAQ: ATVI) announced that Iranian users were restricted from its Battle.net service, effective immediately. Now, Battle.net has been running for over 13 years, and allows massively multiplayer online (MMO) games like World of Warcraft and Diablo III to be played by millions.  According to Blizzard execs, the ban was a result of “United States trade restrictions and economic sanction laws [prohibiting the company] from doing business with residents of certain nations, including Iran.”  Before the games were officially banned by Blizzard, World of Warcraft was already forbidden in the nation, but gamers were circumventing prohibition through the use of proxy servers and virtual private networks (VPNs).  At the end of the day, estimates on total gamers affected range from 2,000 to 20,000.

2) Iran bans Battlefield 3.  Late last year, news hit the blogosphere that Battlefield 3, made by Electronic Arts (NASDAQ: EA), had been banned for sale by retailers in Iran. While this decision may have been unpopular with many fans of the revolutionary first person shooter, it is fathomable why the country’s FARS agency implemented the ban: the game depicted a militarized U.S. raid on its capital city of Tehran.

3) The United Arab Emirates bans Spec Ops: The Line.  Similar to the case of Battlefield 3, the United Arab Emirates has yet to approve Take-Two Interactive Software’s (NASDAQ: TTWO) third person shooter Spec Ops: The Line from being sold within its borders.  The game, originally released in late June, portrays Dubai after it has been ravaged by sandstorms of post-apocalyptic proportions.  Interestingly, gamers in Lebanon, Jordan, Bahrian, Kuwait, Oman, Qatar, and Saudi Arabia will also be unable to purchase The Line, as Electronic Arts’ primary distribution center in this region is located in the U.A.E.

4) Electronic Arts bans mod-users…from everything.  As we’ve previously covered before, readers at The Consumerist voted Electronics Arts as this year’s “Worst Company in America.”  The unwanted award was given to the videogaming giant for a plethora of reasons, including but not limited to: (1) its handling of the ME3 ending, (2) auto-scanning computers to check for illegally downloaded games, (3) closing servers for games released within the past two years, (4) including “pay-to-play” content on game discs, and (5) using charities to advertise games to children without their consent.  As expected, the company has also been in hot water over its policies concerning how it bans its online gamers.  Aside from issuing lifetime bans to those who have sworn on its forums, some technically apt gamers have been outlawed for using mods on FIFA 12.  While it is appropriate that cheaters meet their maker, so to speak, these bans cover all EA games that have been previously purchased on those users’ accounts. Considering the fact that the company publishes a wide range of titles, and has a relative stranglehold on the sports-related videogame market, it seems unreasonable to extend these bans to the entire brand.

5) An ITC judge recommends that the U.S. ban the Xbox 360.  Last but not least, this case is not a ban, per say, but it is a recommendation that the U.S. should ban the import of Microsoft’s (NASDAQ: MSFT) Xbox 360.  The console, which has been on stores’ shelves since 2005, has been sold to nearly 70 million gamers, almost 5 million more than the rival PlayStation 3.  The judge, David Shaw to be exact, has endorsed the idea of a ban on the console, due to its infringement on four Motorola patents.  Intriguingly, Microsoft’s transgression does have legal ramifications, as Motorola won an injunction in Germany that gives it the right to ban sales of the console in the country.  The decision, which was made in May, prompted Judge Shaw to call for a similar ban on American soil.

For more news on how the gaming industry can affect your portfolio, visit WealthLift INSIDER today.

Disclosure: The author has no holdings in the stocks mentioned in this article and has no plans to initiate any positions within the next 72 hours.  He does, however, have the intention of rating these stocks on WealthLift.com, a social media website where investment ideas are shared openly and free.

Jake Mann is a Finance Editor at WealthLift.com, having recently graduated Illinois Wesleyan University with a double major in Economics and Business Administration. In his spare time, Jake enjoys playing guitar, partaking in good ‘ole fantasy baseball, and being an alumni of Tau Kappa Epsilon.

Ford Motor Co. (NYSE: F)

While most green energy enthusiasts wouldn’t tout Ford as their savior, the company actually manufactures the most fuel efficient SUV on the market in the Escape Hybrid, and has Prius-killing plans with the C-Max Hybrid. Available to European drivers since 2003, the C-Max is in its first production year in America.  The hybrid vehicle is EPA-certified at a combined mpg of 47.0, beating the Prius V by  12%.  At a base cost of just under $26,000, the C-Max is also one of the most reasonably priced hybrids on the lot.

Toyota Motor Corp. (NYSE: TM)

Speaking of the Prius, Toyota’s hybrid sedan is in its twelfth production year in U.S. markets. Officially the world’s first mass-produced hybrid vehicle, the Prius is currently available in the V Model (42.0 mpg), the C Model (50.0 mpg), and the PHV Model.  The latter, also known as the Prius Plug-in Hybrid, is able to operate on all-electric power at higher cruising speeds than its predecessors.  Remarkably, it is EPA-certified at 95.0 mpg in its all-electric mode, and still able to achieve an average of 50.0 mpg in its most gas guzzling form.

General Motors (NYSE: GM)

General Motors offers an array of hybrid vehicles, including the GMC Sierra 1500 Hybrid, the Chevy Silverado 1500 Hybrid, the Cadillac Escalade Hybrid, and the Chevy Tahoe Hybrid; each model offers a ubiquitous fuel efficiency of 21.5 mpg.  While it’s very tempting to imagine one’s self gallivanting around town in an Escalade that finally gets decent gas millage, GM’s real contribution to the new CAFE standards is its Chevy Volt.  Since hitting the markets in late 2010, GM has sold nearly 20,000 of its plug-in hybrid model, which has just set a monthly sales record in August.  While fuel economy measurements vary, GM executives estimate that a driver who commutes 60 miles a day will achieve an effective efficiency of 150.0 mpg, assuming the first 40 miles are driven in all-electric mode.  Considering that the Volt has an all-electric range more than twice as large as the Prius Plug-In, it’s easy to see why consumers are clamoring over the car. 

Honda Motor Co. (NYSE: HMC)

In an effort to appease all of the Civic-lovers out there, I’ll briefly mention that Honda does offer a hybrid version of its popular small-sized sedan, though a 26.5 mpg makes it far from a world-beater.  Interestingly, the Japanese automaker also manufactures the Honda Insight (42.5 mpg), and the Honda CR-Z (37.0 mpg).  The latter is perhaps the sportiest hybrid on the market.  In other words, if the Prius and Porsche somehow produced offspring, the CR-Z is what it would look like.  Throw in the fact that it is the only hybrid on the market that can be outfitted with a manual transmission, and this analogy makes even more sense.

While these four automakers only represent a portion of the overall hybrid market, their stocks are the most readily available for American investors to purchase.  Check back at WealthLift INSIDER for a second take on this subject that will cover OTC-traded companies like Nissan, Daimler, Volkswagen, and Volvo.

Disclosure: The author has no holdings in the stocks mentioned in this article and has no plans to initiate any positions within the next 72 hours.  He does, however, have the intention of rating these stocks on WealthLift.com, a social media website where investment ideas are shared openly and free.

Jake Mann is a Finance Editor at WealthLift.com, having recently graduated Illinois Wesleyan University with a double major in Economics and Business Administration. In his spare time, Jake enjoys playing guitar, partaking in good ‘ole fantasy baseball, and being an alumni of Tau Kappa Epsilon.

See, the fear of most value investors is that certain undervalued stocks are trading at cheap multiples for a reason, a situation commonly known as a “value trap.” By analyzing the trends of bullish EPS revisions surrounding these kinds of stocks, we can determine which are likely to jump to a fairer valuation.  It goes without saying that this strategy is constructed upon the notion that earnings play a key role on stock prices.  Without further ado, here is one undervalued stock that has seen significant year-ahead EPS revisions over the past month. 

RPC, Inc. (NYSE: RES)

RPC, Inc. is a holding company that provides a bevy of oil well products through the likes of Cudd Energy Services, Patterson Services, and ThruTubing Solutions.  In addition to selling drilling production and abandonment equipment, RPC also offers workforce education programs, and safety assessment services.  Since the recession, shares of the company have gained nearly 240%, outpacing the energy sector as a whole (10.2%), and peers like Schlumberger NV (NYSE: SLB) at 46.9%, Halliburton (NYSE: HAL) at 38.9%, Weatherford International (NYSE: WFT) at -41.9%, and Superior Energy Services (NYSE: SPN) at 12.1%

Over this same time, RPC has generated consistent top line expansion, averaging an annual revenue growth of 27.3% in a post-recessionary environment where industry peers have averaged just 5.4%.  Moreover, superb operating (25.5%) and net (15.6%) margins have allowed the company to sport even more impressive earnings growth, which has averaged 52.8% a year since 2009.  In comparison the competitors like SLB (-7.4%), HAL (3.9%), WFT (-44.7%), and SPN (-25.9%), a clear advantage can be seen.

From a valuation standpoint, shares of RPC currently trade at a Price-to-Earnings ratio (8.8X) below the industry average (16.7X), and the likes of SLB (18.2X), HAL (9.9X), and WFT (26.2X).  Additionally, the stock is trading below its own 10-year historical average of 10.9X.  In fact, over the past decade, RPC’s earnings have been traditionally valued at a 33% discount to those of the S&P 500.  This year, they are cheaper, trading at a 39% discount.

Interestingly, the oil well product company has more than tripled its operating cash flows over the past 24 months, though it appears that the markets have yet to take full notice, as its shares trade at a paltry Price-to-Cash Flow ratio of 5.3X.  This mark is below the industry average (14.0X), SLB (17.9X), HAL (9.0X), WFT (8.0X), and its own 10-year historical average (11.5X).  When growth is factored into the equation, we can see that shares of RPC trade at a PCFG ratio – which is similar to the PEG – of 0.11; typically any figure below 1.0 signals that an undervaluation exists.

In its most recent earnings release, RPC reported a second quarter EPS of $0.33, 3 cents better than the Street’s average estimate.  Consequently, this stock has seen a rash of analyst revisions in August – nine to be exact.  More pertinently, the consensus EPS forecasts have risen 2.4% over the past month, as year-end estimates currently rest at a mean of $1.40, with a high of $1.76.  Assuming that the company at least meets mid-level expectations, fairly valued shares of RPC can eclipse $15 a share by Christmastime; they currently trade in the $12 range.  WealthLift’s Sentiment Index rates RPC as a strong buy, with nearly all of the community’s users placing an “overperform” rating on the stock.

Disclosure: The author has no holdings in the stocks mentioned in this article and has no plans to initiate any positions within the next 72 hours.  He does, however, have the intention of rating these stocks on WealthLift.com, a social media website where investment ideas are shared openly and free.

Jake Mann is a Finance Editor at WealthLift.com, having recently graduated Illinois Wesleyan University with a double major in Economics and Business Administration. In his spare time, Jake enjoys playing guitar, partaking in good ‘ole fantasy baseball, and being an alumni of Tau Kappa Epsilon.

While this type of activity should not always send a cut-and-dry “sell” signal to investors, it should at least give them reason to pause. It should be remembered, however, that exceptionally high levels of short selling activity can trigger a short-term price appreciation, in a situation known as a “short squeeze,” though betting on these types of events is a risky venture.  Below are two large caps that have seen their short interest rise in recent weeks.

Facebook (NASDAQ: FB)

As the blogosphere has already covered extensively, Facebook has been in a free-fall since its IPO in May, losing nearly half of its original value.  While the bulls are clamoring that a price below $20 a share may be a good buying point for a company with such potential, these claims are baseless.  Until Zuckerberg and Co. can figure out mobile advertising, or at least prove that other ventures like e-gambling and social gifting are profitable, there is no reason for negative market sentiment to reverse.  In the meantime, social media crazed investors would be wiser to consider LinkedIn (NASDAQ: LNKD), which has a much more balanced revenue diversification (30% advertising, 35% premium subscriptions, 35% job listings) than Facebook (85% advertising).

Now, in the short selling realm, the number of shares held by bearish investors has nearly tripled since the company went public.  Currently, Facebook’s short interest has amassed 87.9 million shares, up 55.0% from one month earlier.  Riding an equally augmented level of volume, FB’s “days to cover ratio” is above 2.0.  In most cases, however, a DTC ratio above 8.0 is a necessary requirement for a short squeeze scenario.  At its current market price, Facebook is still trading at a significant premium from both a Price-to-Earnings (125.0X) and a Price-to-Sales (11.1X) standpoint.  Moreover, the company trades at a PEG ratio of 1.5, signaling that there is no value play here, even when projected growth is factored into the equation.

McDonald’s Corp (NYSE: MCD)

This company is coming off a rare earnings disappointment, in which the fast food giant reported a second quarter EPS of $1.32, down 3 cents from last year’s Q2 results.  McDonald’s brass blamed the miss on non-U.S. sales, both in the emerging markets and Europe.  Regarding the latter, sales grew by just 3.8% after flirting with 6.0% growth at the same time last year.  Perhaps more troubling, though, is emerging markets sales, which remained nearly flat after growing by more than 5.0% in Q2 of 2011.  Now, the company is still on target to reach the Street’s year-end earnings estimates, which average $5.41 a share, up 2.7% from the $5.27 it reported in 2011.  Interestingly, this forecasted growth is actually below eatery competitors like Yum Brands (NYSE: YUM) at 13.1%, and Sonic Corp (NASDAQ: SONC) at 11.2%.

Combined with the fact that shares of MCD currently trade at a Price-to-Book that is 18.5% higher than historical norms, a bearish case can be made for the stock.  This may explain why Mickey D’s short interest has jumped 14.2% since the start of summer, and 40.5% over the past six months. WealthLift’s Sentiment Index still rates MCD as a moderate buy, though this situation is definitely worth monitoring.  WealthLift INSIDER can keep you updated.

Disclosure: The author has no holdings in the stocks mentioned in this article and has no plans to initiate any positions within the next 72 hours.  He does, however, have the intention of rating these stocks on WealthLift.com, a social media website where investment ideas are shared openly and free.

Consider these statistics: roughly 85% of Facebook’s top line comes from advertising, while ad sales only make up 30% of LinkedIn’s (NASDAQ: LNKD) total revenues.  Now, we’ve already speculated on the value of Facebook Connect (read more here), a service that the company offers third-party websites for free at the moment, but it’s also worth expanding this analysis to the moves that have already been made by Zuckerberg and Co.  Below are three such developments that ardent investors should keep tabs on.

1) Bingo, slot machines, and more; Facebook has entered the online gambling arena.  Earlier this month, it was announced that the social media platform would allow British users to gamble through a partnership with Gamesys, a UK-based online gaming company. Officially called “Bingo Friendzy,” the game offers Facebookers who are 18 and older the opportunity to play up to 90 different bingo and slot games.  This deal is interesting, due to the fact that it allows users to bypass the Facebook Credits system, which Zynga (NASDAQ: ZNGA) relies so heavily on.  As expected, Facebook will take an estimated 30% cut from all Bingo Friendzy revenues. While this partnership will not solve the entirety Facebook’s monetization woes, it does represent a stepping-stone towards further prosperity.   Quite simply, the legalization of online gambling in the U.S. would be the ultimate gamechanger, and at least one insider appears to agree.

2) Move over Klout, Facebook purchased Threadsy, the developer of Swaylo.  For those not in-tune with the vast dictionary of startup names, Klout is a social media analytics service that allows users to measure their influence across sites like Facebook, LinkedIn, and Twitter. Last week, Facebook purchased Threadsy, the developer of a pay-to-play analytics service called Swaylo. The primary difference between Swaylo and Klout is that the former is more FB-centric.  Now, it has been speculated by many pundits that this acquisition is solely to obtain Threadsy’s development team, but it is possible that Facebook could use Swaylo to monetize its existing analytics services.

3) Karma gives FB a way to profit from the social gifting craze.  Around the same time as the company’s IPO in May, Facebook bought Karma, a mobile-based social gifting app.  The purchase, worth more than $80 million, gives the social network a hand in the e-commerce business.  See, Karma syncs with the gift-worthy dates of a user’s Facebook friends, such as weddings and birthdays, and allows the giver to choose a gift from its preselected catalogue.  The spread between a gift’s actual cost and its price is estimated to fall between 20% and 40%, meaning that this service can provide a healthy source of revenue going forward.

Now, we’re not here to tell you that the aforementioned acquisitions justify taking a bullish position in shares of FB; it remains to be seen exactly how many dollars each service will generate. After all, these developments don’t do anything to shore up mobile advertising, which is ubiquitously seen as the company’s biggest hurdle.  At a Price-to-Sales ratio of 11.1X, Facebook is still trading at a premium to tech peers like Google (NASDAQ: GOOG) at 5.2X, and Zynga at 1.3X, though LinkedIn (16.0X) is a bit more expensive.  Nonetheless, until the company can prove that either: (1) it has a better handle on mobile, or (2) its forays into areas like social gifting and gambling are material, we don’t see any significant appreciation on the horizon.  Likewise, WealthLift’s Sentiment Index rates Facebook as a hold, with the community’s users split on what the future will bring.

For more trading ideas in today’s uncertain market environment, check out WealthLift INSIDER.

Disclosure: The author has no holdings in the stocks mentioned in this article and has no plans to initiate any positions within the next 72 hours.  He does, however, have the intention of rating these stocks on WealthLift.com, a social media website where investment ideas are shared openly and free.

Jake Mann is a Finance Editor at WealthLift.com, having recently graduated Illinois Wesleyan University with a double major in Economics and Business Administration. In his spare time, Jake enjoys playing guitar, partaking in good ‘ole fantasy baseball, and being an alumni of Tau Kappa Epsilon.

This news comes on the heels of Baidu’s very impressive second quarter results, in which the company reported year-over-year revenue growth of 60% and YOY earnings growth of 70%.  With an EPS of $1.24, Baidu beat the Street’s estimates ($1.12) quite handily, placing it on track to reach year-end earnings targets.  Specifically, analysts are predicting that Baidu will finish 2012 with earnings of $4.69 a share, up 55.4% from the $3.02 it reported last year.  By the end of 2013, these estimates rise another 37.2% to $6.44 a share.  On an annual basis, BIDU sports a two-year expected EPS growth (56.6%) higher than GOOG (20.8%), Sohu.com (NASDAQ: SOHU) at -16.5%, and SINA Corp (NASDAQ: SINA) at -3.6%.

It’s worth mentioning that Baidu’s projected EPS growth is below historical levels, in which bottom line expansion has averaged 84.6% a year post-recession. This has been greater than the Internet content and information industry’s average (35.4%), and peers like GOOG (30.8%), SOHU (-1.1%), and SINA. Now, this growth could not have been achieved without the company’s excellent efficiency, in which operating (51.3%) and net (46.8%) margins are far above industry norms (23.8%, 18.9%), GOOG (30.5%, 25.7%), SOHU (22.6%, 11.4%), and SINA (-14.3%, -61.3%).

Despite this clear advantage, shares of BIDU are trading at a Price-to-Earnings ratio (29.9X) below the company’s own 5-year (70.6X) and post-IPO (114.1X) historical averages.  In fact, over the past half-decade, Baidu’s earnings have traditionally traded at a 369% premium to those of the S&P 500.  This year, they are much cheaper, trading at just a 103% premium.  When EPS growth is factored into the equation, we can see that the stock is trading at a five-year expected PEG ratio of 0.6; typically any figure below 1.0 signals undervaluation.  Moreover, this PEG ratio is also below peers like GOOG (1.0), SOHU (3.1), and SINA (15.4).

From a cash standpoint, Baidu has seen impressive annualized growth in operating (86.3%) and free (73.0%) cash flows over the past three years, though it is trading at a Price-to-Cash Flow ratio (31.4X) below its own 5-year (40.5%) and post-IPO (57.2X) historical averages.  When the PCFG ratio (0.4) is computed – which is calculated in the same manner as the PEG ratio – a similar story is told.

To recap: Baidu has been one of the quickest growing Internet stocks since the recession, generating exceptional earnings growth driven by superior margins.  Now, bottom line expansion is slowing down, though it appears that the markets are underappreciating future growth potential.  According to nearly every valuation metric under the sun, shares of BIDU look to be oversold.  If 12 to 24 month EPS forecasts hold, the stock can eclipse $190 by next fall, making an appreciation north of 60% a real possibility.  WealthLift’s Sentiment Index does rate Baidu as a strong buy, with the overwhelming majority of the community’s users placing an “overperform” rating on the stock.  For more trading ideas in today’s uncertain market environment, check out WealthLift INSIDER.

Disclosure: The author has no holdings in the stocks mentioned in this article and has no plans to initiate any positions within the next 72 hours.  He does, however, have the intention of rating these stocks on WealthLift.com, a social media website where investment ideas are shared openly and free.

Jake Mann is a Finance Editor at WealthLift.com, having recently graduated Illinois Wesleyan University with a double major in Economics and Business Administration. In his spare time, Jake enjoys playing guitar, partaking in good ‘ole fantasy baseball, and being an alumni of Tau Kappa Epsilon.

Now, this improved yield is still below Hewlett-Packard (NYSE: HPQ) at 3.0%, but certainly a step above the likes of Juniper Networks (NYSE: JNPR), F5 Networks (NASDAQ: FFIV), and Riverbed Technology (NASDAQ: RVBD), all of which do not pay a dividend.  With over $10 billion in free cash currently on its books, Cisco’s future looks bright, though it appears that investors have yet to take full notice.  The stock currently trades at a Price-to-Cash Flow ratio (9.3X) below the communication equipment industry’s average (11.9X), JNPR (12.8X), FFIV (16.9X), and RVBD (17.3X).  More importantly, Cisco’s cash hoard is also trading below its own 5-year (12.2X) and 10-year (16.2X) historical averages.

From an earnings standpoint, this undervaluation is slightly more pronounced, as shares of CSCO are currently trading at a Price-to-Earnings ratio of 14.2X, far below the industry average (24.1X) and competitors like JNPR (37.3X), FFIV (28.7X), and RVBD (52.9X).  Interestingly, HPQ (6.8X) sports a lower earnings multiple, but it is trading at a higher PEG ratio (1.6) than CSCO (1.2).  Moreover, the company’s bottom line is undervalued in comparison to its own 5-year (17.7X) and 10-year (24.4X) historical norms.  In fact, Cisco’s earnings have traditionally traded at a 44% premium to those of the S&P 500 over the past decade.  This year, they are much cheaper, trading at a 3% discount.

As mentioned above, Cisco finished its most recent quarter with better than expected EPS growth.  Interestingly, the Street is forecasting the company to expand its bottom line by an average annual rate of 8.9% over the next five years, nearly double the growth rate (4.9%) it has achieved over the past half-decade.  Moreover, it appears that this expansion is accelerating in the intermediate term, as analysts are estimating 5.1% growth in 2013 and 9.8% growth in 2014.  If these estimates hold, Cisco will sport a ’14 EPS in the neighborhood of $1.90; nearly double the company’s 2009 total.  Assuming that valuation metrics return to their historical levels, fairly valued shares of CSCO can eclipse $33 in the next 18 to 24 months; they currently trade in the $19 range.  Heck, even if the stock simply maintains its current valuation, it should flirt with $27 a share, making a 40% appreciation over the next two years a solid floor.

From a macroeconomic perspective, there are promising headwinds in the mobile data market, in which Cisco hold a dominant market share in nearly every area including mobile IP infrastructure, backbone, edge, and backhaul.  Over the next five years, mobile data traffic is expected to grow by more than 80% per annum, reaching 10 billion data-using devices by 2016.  While projections remain rather fluid, the company is currently stating that this demand-driven expansion will improve revenues by $20 billion a year by the middle of this decade.

To recap: Cisco is coming off an extremely impressive earnings release, and is expecting solid EPS growth over the next few years.  The stock is currently trading at cheap valuation metrics nearly every way you slice it, and a strong presence in the mobile arena gives investors plenty of reasons to be even more bullish.  WealthLift’s Sentiment Index rates CSCO as a strong buy, with 95.45% of the community’s users placing an “overperform” rating on the stock.  For more trading ideas in today’s uncertain market environment, visit WealthLift’s INSIDER blog.

Disclosure: The author has no holdings in the stocks mentioned in this article and has no plans to initiate any positions within the next 72 hours.  He does, however, have the intention of rating these stocks on WealthLift.com, a social media website where investment ideas are shared openly and free.

Jake Mann is a Finance Editor at WealthLift.com, having recently graduated Illinois Wesleyan University with a double major in Economics and Business Administration. In his spare time, Jake enjoys playing guitar, partaking in good ‘ole fantasy baseball, and being an alumni of Tau Kappa Epsilon.

Beyond Search           

First, a quick synopsis of Google’s most notable recent acquisitions and initiatives:

• Google Play – a recently launched entertainment application for music, television, and movies.

• Google Fiber – a fiber optic Internet network capable of reaching connection speeds of up to 1,000 Mbps.

• Google Drive – a cloud-storage and group collaboration workspace integrated with Gmail and Google Docs.

• Acquisition of Motorola Mobility – the centerpiece of the company’s push into mobile and communications hardware. Motorola Mobility will be run as a separate company whose wares are intended to complement the Google’s Android platform.

• Acquisition of Frommer brand and Zagat – Google acquired the Frommer’s brand of travel guides in early August 2012 and Zagat, a restaurant review company, early in the summer of 2012. A Google representative expressed that the acquisitions were made as part of an effort to “provide a review for every relevant place in the world.” Google also acquired travel software-maker ITA in April 2011.

• Self-driving automobile technology

• A Google tablet

• Google Offers (basically Groupon with a new face)

• Several strategic investments in renewable power sources for the dual purposes of powering a number of the company’s data centers and selling energy to the grid.

Google’s recent initiatives fit a pattern of a company reaching beyond its core business and seeking to control adjacent markets; search advertising complemented by influence over Internet content, the hardware (mobile and tablet) used to consume such content, and even the electricity used to power company data centers.

The financial returns from the aforementioned initiatives, as well as a plethora of others not specifically mentioned, could be great. Cross-platform integration of adjacent products and services can be a boon to the company if implemented well. Apple’s integrated software-hardware offerings are an appropriate example. Yet Google’s plans seem more ambitious. The company seeks to offer hardware and software and content, while also moving into the supply side through energy projects. Not to mention Google Wallet, Google cars, numerous web-based applications through both organic growth and strategic acquisitions, and many more initiatives.

Financials

Google’s financial position is as strong as its product offerings. The company’s annual revenue has been growing by 20% or more for years and many analysts predict similarly strong growth in coming years. Annual earnings in 2011 grew by about 13% over the previous fiscal year and 2012 EPS growth is expected to top 40% by some estimates. The company’s net margin in 2011 was a solid 27%. Google’s 5-year expected PEG is a mere 1.2 and its P/E is 20 – strikingly average for a swiftly expanding technology company.

Moreover, the stock is a darling of Wall Street; 155 hedge funds have positions in the company – 2^nd only to Apple. There are no sell or underperform analyst ratings on Google. This author is not going to distinguish himself with a dissenting opinion.

Risks

Google’s strategy seems to have three primary risks: Attracting regulatory ire; inciting fierce competition with other tech giants attempting a similar type of integration; and – the ever-present risk in the technology sector – loss of competitive advantage for some reason.

Regulatory scrutiny of the Motorola deal was fairly intense and several third parties called for anti-trust action against the company in reaction to its recent Zagat and Frommer acquisitions. The risk of anti-trust action will inevitably grow as the company expands.

Google’s recent initiatives will also bring it into more direct competition with companies that previously occupied a market sphere tangential to Google’s. Such a circumstance could drastically shrink margins should cost competition win out over product-differentiation.

A loss of competitive advantage for any reason – failure to continue to attract talent, failure to successfully integrate acquisitions, poor cohesion among the company’s various segments, etc. – is an ever-present risk in the technology sector. Although the company is renowned for attracting some the most talented individuals in the world and is well-managed, the smallest stumble can make it vulnerable to its expanding competitors.

Finally, Google’s advertising revenues cannot sustain 20%+ growth rates forever and when the market begins to mature, growth rates will inevitably fall. Thus, relying on the company’s lucrative search segment may not necessarily be an attractive option for a company that clearly has more grand and expansive ambitions and is more or less expected to be infallible by investors.

Conclusion

Google’s mission of organizing and monetizing the world’s information is as flexible and pregnant with opportunity as it is vague and difficult conceptualize. The company’s search business is incredibly successful. Its efforts to control adjacent market spheres could be a boon for investors – contingent upon regulatory acquiescence. Historically, Google’s ventures beyond search have generally been quite successful, the Android mobile platform in particular. Although to be fair, Google+ is a notable exception. Ultimate verdict: Stock is a long-term buy. Ask 155 hedge funds. They’ll tell you. Just don’t be evil.

For more tech news and trading ideas, visit WealthLift’s INSIDER blog today.

Disclosure: The author has no holdings in the stocks mentioned in this article and has no plans to initiate any positions within the next 72 hours.  He does, however, have the intention of rating these stocks on WealthLift.com, a social media website where investment ideas are shared openly and free.

Denis Hurley is a WealthLift Finance Columnist pursuing a double major in Government and Economics with a minor in Real Estate at Cornell University. He is a Junior Analyst for the Mutual Investment Club of Cornell, is a member of the Cornell Board of Portfolio Managers, manages a personal investment portfolio, and has had economic and equity research published in the Cornell Historical Society’s Journal and the Cornell Business Asia Review. He enjoys long distance running, especially marathons, in his free time.