These Stocks Got Grilled, but They're Still Enticing

As you fire up your grill for Memorial Day, it's not a bad time to take a look at stocks that have been grilled so far this year.

After stocks' remarkable recovery starting in March of last year, the rally has started to falter. Concerns over the strength of the economic recovery, sovereign debt levels, and even geopolitical strife on the Korean peninsula have sent investors reeling from risk.

Some of the sell-off is for fundamental reasons. With Europe lagging behind, the recovery is going to be less robust than previously thought, and banks slammed by the sovereign debt crisis could freeze the credit markets again, making it hard for companies to invest.

Looking at the biggest year-to-date decliners among firms with narrow or wide economic moats shows these fundamental fears. The biggest decliner is the National Bank of Greece, and plenty of other banks and other Europe-based firms make the list.

But some companies are being unfairly punished. Almost every firm will be affected by slower growth. But some stock's prices have become cheap enough to look attractive, despite a potential slowdown in earnings.

Paying attention to valuation is always crucial but especially so in uncertain economic times. Having that margin of safety to a firm's intrinsic value offers some downside protection to investors if growth falters more than expected.

To find some of these unloved, but cheap stocks we ran a screen of 5-star stocks, with narrow and wide moats that landed in the bottom quartile of year-to-date performance. You can run the screen for yourself  here using our  Premium Stock Screener.

The top 10 feature plenty of pharmaceutical and energy firms, exactly the type of defensive firms you'd expect to potentially be able to withstand additional pain.

Company Name Ticker Moat Year-to Date Return Baxter International Inc. BAX Narrow -27.8 France Telecom SA FTE Narrow -22.9 FirstEnergy Corporation FE Narrow -21.8 Sanofi-Aventis SNY Wide -19.8 GlaxoSmithKline PLC GSK Wide -18.6 Exelon Corporation EXC Wide -18.2 Invesco Ltd IVZ Narrow -18.1 Nokia Corporation NOK Narrow -16.4 Roche Holding AG RHHBY Wide -16 Novartis AG NVS Wide -13.9

 

Here is a closer look at the three biggest decliners so far this year.

 Baxter International (BAX)
Moat: Narrow | Fair Value Uncertainty: Medium | YTD Return: -28%

From the Premium Analyst Report:
Baxter International's prowess in injectable therapies makes the firm an indispensable supplier to caregivers around the globe. With its recent restructuring largely over, Baxter has set its sights on growing through internal development and small acquisitions, and we like its prospects.

 France Telecom (FTE)
Moat: Narrow | Fair Value Uncertainty: Medium | YTD Return: -23%

From the Premium Analyst Report:
We expect the firm to continue to enlarge its wireless business, and we like its emerging-markets portfolio, which we expect to be the focus of future acquisitions. We expect this segment to grow faster than the rest of the business. FT has been reshaping its rest-of-world segment to focus on faster-growing markets, selling its operation in the Netherlands while increasing its stake in Austria, and buying positions in Guinea, Guinea Bissau, the Central African Republic, Uganda, and Kenya.

 FirstEnergy (FE)
Moat: Narrow | Fair Value Uncertainty: Medium | YTD Return: -22%

From the Premium Analyst Report:
After years of legal, political, and regulatory debate, Ohio utility regulators finally have agreed to a patchwork plan to implement utility deregulation. It was decided in early 2009 that all of FirstEnergy's power plants will be able to sell at market prices by 2011. We think the company's size and attractive assets put it in position to capture upside from deregulation in the long run, but working through near-term challenges could slow growth. A bid to acquire  Allegheny Energy , announced in February 2010, would further leverage FirstEnergy to the benefits of rising commodity prices in deregulated energy markets.

All data as of 5/28/2010