Stand clear—if the S&P 500 is up only 2 percent over the past five years, the stocks of a number of popular, big companies have flatlined.
Cisco may be the most famous, but it’s hardly alone.
To find others, using data from AnalytixInsight, I ran a simple screen: Companies with market values above $1 billion that have below-peer price-to-book ratios, earnings before interest, and taxes growth and/or price-earning ratios. I then overlaid them with the S&P 500 —looking for laggards.
The idea was to keep it simple with the ultimate question investors need to be asking: Value opportunity or value trap. Or more to the point: Are these companies on their way to being perpetually dead money?
Among those on the list, the most prominent include:
—Dell: While this may be no surprise, given the rocky nature of the one-time king of computers, its stock performance is. Most companies on our list have traded in line the S&P over the past five years. Dell has consistently traded at an unusually wide discount—currently around 50 percent for the period. The company has actively been trying to refocus its strategy, rein in costs and acquire complimentary growth businesses.
Like some other tech laggards, it has an impressive cash hoard of $8.3 billion after subtracting debt. The upside: According to AnalytixInsight, Dell can afford to pay a dividend. (It doesn’t.)
Still, based on its stock, investors may be thinking even that would be too little too late. With a P/E of 10.63, it lags the peer average of around 15.21. And the outlook may not be better—at least not if Cowen analyst Matthew Hoffman is correct. He initiated coverage last week with a neutral, saying that he believes the PC business is falling faster than the company can build its enterprise IT solutions business.
—Medtronic: Like Cisco , Medtronic has underperformed the S&P 500 by about 20 percent over five years. Its price-to-book ratio of 2.80 is below its peers. And while it has relatively high profit margins, its peer-average returns on capital suggests the company “does not have any particular operating advantage” in an industry that it itself is in some form of turmoil.
Furthermore, according to AnalytixInsight, with a below-peer price/earnings multiple of around 13, “the buy-side likely sees the company’s long-term growth prospects to be fading.”
Some analysts agree, with Morgan Stanley’s Michael Weinstein telling his clients that he rates the stock a neutral because of significant long-term “challenges.”
In an interview, CFO Gary Ellis acknowledged the challenges, but says he believes many of the uncertainties facing the industry and Medtronic are giving way to stabilization and new products that should drive growth.
—Target: This one surprised me. For all of the hoopla about what a great operator Target is, especially relative to Wal-Mart , it has been a let-down for investors.
Over the past five years its stock has mostly tracked the S&P; it currently trades at a 5 percent discount for the five-year period. While it could use its stock to acquire companies, its size, with a book value of $15.4 billion, would make it difficult to acquire.
And for those looking for Target to be bailed out by stock buybacks: Based on its available debt capacity, its interest coverage and cash flows, AnalytixInsight says, “We doubt they will be able to repurchase shares even if they appear to be bargains by other standards.”
Finally, Target’s earnings have grown more slowly than peers in recent years, suggesting either that it’s at the bottom of its growth cycle “or is simply a laggard.” A number of analysts agree. “Signs continue to point toward modest growth,” says Wayne Hood of BMO Capital Markets. On the restructuring front, the one upside: Analysts expect the company to sell its credit business by the end of this year.
Others on the list include:
—Intel: That’s right—for all of its fundamental ups and downs Intel’s stock is one of the dogs of the Dow. Trading at barely a premium to S&P, it's probably the closest to a true flatliner in our group. The good news, according to AnalytixInsight: It’s in a position to raise its dividend, make acquisitions and increase its dividend. It may even be able to buy back shares. The bad news, from a fundamental perspective: “Its relatively low level of capital investment suggests it’s milking its business.”
—Yahoo: According to the Wall Street Journal, the company’s board is in a two-day meeting discussing a variety of issues. Like Dell, Yahoo has traded at a large discount to the S&P for five years. And like Dell, that discount is currently close to 50 percent.
—Nokia : The cellphone-maker’s problems are well known and well telegraphed by the market, where its stock—based on a five-year span—has underperformed the S&P by nearly 60 percent.
—Finally, FedEx . It may absolutely, positively get your packages where they need to go when they need to get there, but it hasn't delivered for investors—underperforming the market over the past five years.
My take: Just as momentum stocks can rise further and faster than people expect, value stocks can be value traps longer than expected. When they turn, if they turn, nobody rings a bell to announce it. And programming note: I'll be discussing these stocks on air with analysts today on Squawk on the Street, Power Lunch, Fast Money Half Time and Closing Bell.
Questions? Comments? Write to HerbOnTheStreet@cnbc.com
Follow Herb on Twitter: @herbgreenberg
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