Stocks in the News — week of May 13, 2013 (May 17 update)

Goodfellow LLC’s “Stocks in the News”

seen on Townhall Finance, heard on Ransom Notes Radio

 

Yahoo Fined $2.75 Billion — er, Nevermind! 

(YHOO, $26.56, down two cents midday)

A breach of contract lawsuit against Yahoo! Inc. and Yahoo! Mexico has been dismissed by an appellate court in Mexico, along with the $2.75 billion fine which was awarded to plaintiffs in 2012.  The lawsuit pertained to breach of contract allegations over a Yellow Pages listing service, and the fine stunned the technology world.  Yahoo! Mexico will instead pay damages of $172,500. The original $2.75 billion fine was awarded by a law clerk, after the judge presiding over the case stepped down.

Yahoo! Inc.’s earnings are projected to grow 20% this year.

The stock price broke past long-term resistance at $19 in December and had a big run-up.  We would wait for the chart to stabilize before considering any further investments.  (05/17/13)

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Northrop Grumman to Grow Earnings Through Aggressive Share Repurchases

(NOC   $81.76, up $2.74 midday)

Weapons maker Northrop Grumman Corp. announced plans to repurchase another $4 billion of stock, and to repurchase a total of 25% of shares through 2015.  Repurchases will be funded by cash flow, and possible issuance of new debt.

Earnings per share are projected to fall 9% this year, with small rebounds in the next two years.  The dividend yield is 2.97%.  The stock recently broke past medium-term resistance and rose 17%.

We don’t see the point in owning shares of companies that can’t grow their earnings without buying back shares, when stocks of comparable household names with strong earnings growth are widely available.  (05/17/13)

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J.C. Penney Struggles to Remain Viable

(JCP, $18.38, down 41 cents mid-day)

Beleaguered retailer J.C. Penney Co. reported a first quarter loss of (-$1.31) per share vs. the consensus loss of (-$0.89).  The company recently brought back former CEO Mike Ullman in a last ditch attempt to save the store from detrimental changes in merchandising and pricing, brought on by recent CEO Ron Johnson.

J.C. Penney was on the verge of bankruptcy this spring, when additional financing became available, but 70% of the new credit lines have already been used up.  The company plans to attract former customers and shore up margins by returning to successful private label brands, investing in inventory, improving its online business, fixing the JCP Rewards program, and testing new marketing efforts.

We told investors to sell J.C. Penney shares three times this year.  The company is projected to continue losing money for the next three years.  The stock price reached ten-year lows in April, and will probably trade between $18 and $22 near-term.

Frankly, we believe it’s a miracle that the shares have any value at all.  Shareholders should take the money and run.  (05/17/13)

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Google Hosts I/O 2013 Conference

(GOOG, $907.17, down $8.72 mid-day)

Google Inc. reported a variety of product improvements and tools for developers at its Google I/O 2013 Conference yesterday, solving problems with the Google Wallet checkout process, and introducing a new vector-mapping service in Google Maps.  “The biggest new product launch was arguably Google Play Music All Access, a competitor to subscription services like Spotify,” reports Time Tech.  The music service is being launched today in the U.S.

Google’s earnings are expected to grow 15-18% per year for the next three years.  The PE is 19.9.  Google has $48 billion in cash-on-hand.

The stock broke past long-term resistance in September, and continues to reach new highs.  We wouldn’t chase the stock after its big run-up this month.  Read our latest research report on Google Inc.

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Top-Level Management Upheavel Pending at Hess Corp.

(HES, $68.61, down $1.99 mid-day)

Oil company Hess Corporation, with $38 billion in annual revenues, plans to replace John B. Hess as Chairman and give the position to former GE CEO John Krenicki at next week’s board meeting. The company is in a proxy battle with Elliott Management Corp. over management of Hess.

The industry has been rife with bad governance.  In recent weeks, Occidental Petroleum, Chesapeake Energy, and Transocean Ltd. have each seen shareholder activists force top-level management changes in order to improve operations.

Earnings at Hess are projected to rise 6% this year, then fall 5% and 4% in the next two years.  Hess shares have been trading between $66 and $75 this year, but there’s no catalyst to launch them higher.  We suggest that current shareholders consider switching to a stock with growing earnings and a bullish chart.  (05/16/13)

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Cisco Systems Reports Strong Third Quarter

(CSCO, $23.71, up $2.50)

Cisco Systems, Inc., the biggest maker of networking equipment, reported third quarter profit of 51 cents per share, vs. analysts’ estimated 49 cents.  Revenues and gross margins also beat expectations.  Sales are up from new products, price-cutting on traditional products, and upgrades of data traffic networks to accommodate smartphones and tablets.

In addition, strategic acquisitions, job cuts, and sales of non-performing business units are enhancing Cisco’s earnings growth.  Earnings per share are expected to grow 6-8% per year for the next three years.  The dividend yield is 2.87%.

Cisco’s stock price hasn’t made any progress in ten years.  However, it’s in a short-term uptrend, broke past resistance today, and could head toward $28 in the near future.  We suggest that traders buy on a dip below $23, and that other shareholders consider jumping out at $28, because the earnings growth isn’t strong enough to catapult the stock past medium-term resistance.  (05/16/13)

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Macy*s Reports Good Quarter, Dividend Increase and Bigger Repurchase Plan

(M, $48.48, up $1.09 mid-day)

Department store chain Macy’s Inc. reported first quarter earnings per share of 57 cents, vs. analysts’ estimates of 55 cents.  The company increased its dividend by 25%, and added another $1.5 billion to its share buyback program.

Macy’s earnings are expected to grow 13-15% per year for the next three years.  The PE is 12.4.  The new dividend yield is 2.1%.

Macy’s is featured in the Goodfellow LLC Growth & Income Stock Portfolio for 2013.  Read more about Macy’s in our recent research report here, or in today’s recommendation to subscribers.

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Deere & Co. Reports Record Profits, but Cautions on Revenue

(DE, $89.67, down $4.10 mid-day)

Farm equipment manufacturer Deere & Co. reported a solid second quarter today, slightly beating Wall Street’s earnings estimates.  However, the company guided annual revenue projections downward.  The weak global economy is affecting Deere’s construction sales, while farm sales remain strong.

Deere’s earnings growth has been rapid in recent years, and is expected to slow to 3-4% in 2014 & ‘15.  The dividend yield is 2.3%.  The current PE is 10.4.

The stock has been in a trading range for almost three years, and will likely trade between $87 and $95 near-term.  With earnings growth slowing dramatically, there’s no catalyst for the stock price to break above $95.  (05/15/13)

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Citigroup Pares Back Assets, Reaps Cash

(C, $51.39, up $1.30 mid-day)

Citigroup Inc. has agreed to sell its Brazilian banking unit to Itau Unibanco, which will bring Citigroup a $300 million after-tax gain.  In April, Morgan Stanley Research said, “Larger asset sales … could drive upside to our price target.” Citigroup is in the midst of a multi-year expense cutting program, with sustainable earnings growth.

Earnings per share are expected to rise 22%, 13% and 13% in the next three years.  The PE is 10.8.  Share buybacks are expected to total $930 million this year, and then $7.4 billion in 2014.

Citigroup stock has been trading repeatedly between $23 and $54 for four years.  The stock appears ready to finally break out of that trading pattern on the upside.  Watch for a new research report on Citigroup later today, available to subscribers.  (05/15/13)

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Artificial Inducements Inflate Tesla Stock Price

(TSLA, $90.65, up $2.85 today)

With recent news of Tesla Motors Inc.’s first quarterly profit, and a near-perfect rating on its Model S electric car from consumer reports, frenzied gamblers have doubled the stock price since mid-April.  The company is expected to earn its first annual profit of five cents per share this year, giving it a price-earnings ratio of 1800

“Tesla’s profit and cash flow depends on the continuation of key government initiatives such as regulatory credits,” says Morgan Stanley Research.  Tesla and the U.S. government continue to subsidize the purchase and lease of its electric cars via tax credits and repurchase guarantees.

Morgan Stanley Research has a bull-case scenario of $200 per share, and a bear-case scenario of $20 per share.  We suggest that current shareholders use stop-loss orders to protect profits.  New investors should remember the late ’90’s tech bubble, and the recent real estate bubble, and stay away from gambling in the stock market.  (05/14/13)

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Nintendo Wins in Appeals Court; Motiva Shoots for Legal Trifecta

(NTDOY, $13.45, up two cents today)

Video game maker Nintendo Company won a U.S. appeals court decision yesterday against Ohio-based Motiva LLC.  Motiva sued Nintendo in 2008, but the patent case affecting its popular Wii system was viewed as somewhat frivolous.  “The evidence demonstrated that Motiva’s litigation was targeted at financial gains, not at encouraging adoption of Motiva’s patented technology,” Circuit Judge Sharon Prost wrote.

Motiva plans to appeal to district court.

Nintendo shares on the NASDAQ have never recovered from the 2008 Financial Meltdown, and are trading between $13 and $15.  We would avoid this thinly-traded stock in favor of companies with more volume and more widely available information for investors.  (05/14/13)

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Verizon Wireless to Pay $7 Billion Dividend to Joint Owners

(VOD, $29.54, down 12 cents today; and VZ, $52.95, up 40 cents today)

Verizon Wireless, the most profitable and fastest-growing major wireless carrier in the U.S., has unexpectedly announced that it will pay a $7 billion discretionary dividend to joint owners Vodafone Group PLC and Verizon Communications.  There’s cloudy speculation on what this could mean to the long-term M&A talks between Verizon Communications  and Vodafone, and investors will simply have to wait to see what emerges.

Vodafone’s business is languishing in Europe, and its 45% stake in Verizon Wireless  shores up its balance sheet.

Read our recent report on Verizon Communications and Vodafone Group PLC.  (05/14/13)

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Priceline Earnings Blowout

(PCLN, $766.90, up $1.49 today)

Priceline.com reported earnings of $5.76 per share, embarrassing Wall Street’s $5.27 estimate, on a continued surge in international hotel bookings.

Earnings growth projections have risen since we last reported on Priceline.  Estimates have gone from 20% growth to 23% growth in 2013.  Now that Priceline has exceeded expectations again, expect those numbers to ratchet higher.  The PE is 19.8.

The stock price is getting ready to break through all-time highs and climb upwards.  On Feb. 27, we told investors to buy Priceline.com during a market correction.  With consistent upside earnings surprises, we would buy Priceline shares now, and especially accumulate shares on any dip to $740.  (05/13/13)

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Israel Considering Raising Teva’s Low Tax Rate

(TEVA, $39.18, up 29 cents today)

“The Globes [financial paper] reports that Israel’s Minister of Finance … told Teva CEO Jeremy Levin that ‘the time has come to change the rules of the game on trapped profits and tax benefits’ in a meeting on Friday, May 10,” reports Morgan Stanley.

Teva Pharmaceutical Industries Ltd., the world’s largest generic drug manufacturer, is based in Israel, and paid a 12% income tax rate last year.  While the company is solidly profitable, earnings per share have been declining in recent years, with another 6% drop expected this year.

The stock has been suffering and trading sideways for quite a few years.  We would avoid TEVA and focus on companies with consistent earnings growth and bullish charts.  (05/13/13) 

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Mosaic Company Intent on Large Share Repurchase

(MOS, $61.06, down $2.22 today)

Mosaic Company, the world’s largest producer of phosphate crop nutrients, is expected to repurchase $2.6 billion in stock this year from Cargill shareholders and trust.  Mosaic has $2.4 billion in surplus cash and another $3B in incremental available liquidity.  The company is also seen as a potential takeover target, with speculation that BHP Billiton would pursue the acquisition.

Mosaic has a history of earnings bouncing around, which are expected to be down 7% this year, then up 20% next year.

The stock is volatile, but the chart pattern is very bullish, and appears immediately ready to break out and rise toward $72.  Experienced investors and traders should take a closer look and consider buying today, then selling around $72.  (05/13/13)

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Questions?  Contact Crista Huff at research@goodfellowllc.com.

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