Featured Stocks in Action — week of May 27, 2013 (May 29 update)

(Note: This article was reserved for Goodfellow LLC subscribers until January 28, 2017, when I made it available to the general public.)

 

Best Idea Today:  O’Reilly Automotive (ORLY, $110.44) has a beautiful bullish chart pattern.  Projected earnings growth this year is 22%, a little higher than when we reviewed the stock in February.  Growth stock investors should consider owning ORLY shares.  (05/29/13)

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News Corp. to Separate into Two Companies on June 28

(NWSA, $32.71, down 53 cents midday)

Rupert Murdoch’s News Corp. intends to separate into two companies on June 28.  Shareholders will receive shares of entertainment company 21^st Century Fox, and publishing company News Corp.  The publishing company will have $2.6 billion in cash, no debt, a $500 million stock repurchase plan, and a dividend.

While the newspaper industry is dying in America, Rupert Murdoch points to his track record and adds, “there is opportunity everywhere.”  The company plans to aggressively pursue growth strategies, including digital media, and M&A activity.  S&P says, “We think the new entity will emerge as a force for industry consolidation.”

News Corp.’s stock price broke out on January 2 and is up 29% year-to-date.  We continue to recommended shares of News Corp., and believe that investors who own shares prior to the spin-off will be rewarded with additional capital gains.  We’ll update our spin-off details today.  Here’s our latest research piece on NWSA. (05/29/13)

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Michael Kors’ Fourth Quarter Far Exceeds Expectations

(KORS, $63.07, up $1.09 midday)

Upscale accessories maker Michael Kors Holdings Ltd. reported fourth quarter earnings of 50 cents per share, blowing away analysts’ estimates of 39 cents.  Sales were up 97 percent in Europe, where the company will add 40 new stores.  North American sales were up 52 percent.  Gross margins for the quarter rose two full percentage points.

Wall Street expects earnings per share to grow 140% this year, although that number could be revised upward near-term.  The PE is 34.

Michael Kors stock has had a two-steps-forward-one-step-back approach since going public in late 2011.  On March 23, at $55.61, we said, “This stock is a screaming buy for aggressive growth investors,” and we still like the stock.  Expect the stock to trade between $61 and $65 in the very near-term.  (05/29/13)

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Valeant Pharmaceuticals in Agreement to Buy Bausch & Lomb

(VRX, $90.58, up $6.11 midday)

Valeant Pharmaceuticals International Inc., Canada’s largest drugmaker, has agreed to buy privately-held eye-care company Bausch & Lomb Holdings Inc. for $8.7 billion.  The deal will be financed by the issuance of new equity and debt.  Valeant’s long-term debt ratio was already high at 56%.

Valeant is a rapidly growing specialty drugmaker, in the areas of dermatology, neurology and ophthalmology.  On April 29, we recommended to Ransom Notes listeners that they buy Valeant Pharmaceuticals, and the stock has since risen 21%.  Despite projected earnings growth of 26% this year, and a PE of 16.2, we believe the company’s high debt levels warrant investor caution.

Goodfellow LLC subscribers have made money in Valeant shares this year.  On April 2, right before it began its price consolidation, we said that we’d be buyers of VRX shares on a pullback to $70.  Based on the company’s debt levels, we are ceasing buy recommendations on  VRX.  However, current shareholders might continue to make money, and we suggest using stop-loss orders to protect profits.  (Here’s our January research report.) (05/28/13)

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Crista Huff

President

Goodfellow LLC

 

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