Stocks in the News — week of May 6, 2013 (May 10 update)

 

Goodfellow LLC’s “Stocks in the News”

seen on Townhall Finance, heard on Ransom Notes Radio

 

Sotheby’s Expects Continued Earnings Appreciation

(BID, $35.93, down 38 cents today)

Sotheby’s, auctioneer of fine art, jewelry and collectibles, reported an earnings miss, primarily due to lower commission margins.  The company implemented a new pricing structure in March to solve that problem.  Citi commented, “While first quarter was below expectations, we like the revenue growth trends apparent in the business.

Wall Street previously expected earnings to grow 36% this year, but Citi Research now expects 11% growth.  Watch for full-year consensus estimates to be revised downward.

The stock has been trading mostly between $28 and $40 for three years.  Watch for it to trade between $34 and $40 in the near-term.  (05/10/13)

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Celgene’s Pipeline is Bursting at the Seams

(CELG, $126.67, up $3.96 today)

Biopharmaceutical company Celgene Corp. hosted an Analyst Day this week, with the key takeaway being that Apremilast has much larger growth prospects than are currently factored into consensus estimates.  Apremilast is in multiple Phase III trials, targeted to treat psoriasis, psoriatic arthritis, and other chronic inflammatory diseases.  Citi Research maintains a bullish long-term outlook.

Earnings per share are projected to grow 17%, 20% and 28% in the next three years.  The PE is 21.7, in a four-year range of 17 to 35.

We recommended that investors buy Celgene on March 5, when the stock was in a breakout pattern.  It rose $17 dollars, and is now trading between $116 and $128.  (05/10/13)

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Blurry Outlook for Graphic Chipmaker 

(NVDA, $14.50, up 59 cents today)

Nvidia Corp., maker of computer graphic chips, reported first-quarter sales and earnings above consensus estimates.  However, full-year estimates are being revised downwards due to a competitive pricing environment and heavy investment in new Tegra products.

Earnings per share are projected to fall 22% this year.

The stock has been trading sideways between $11 and $17 for two years.  Shareholders should take advantage of price fluctuations to jump out of Nvidia and into a stock with consistent earnings growth.  (05/10/13)

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Groupon’s First Quarter Report Calms Investors

(GRPN  $6.15, up 56 cents today)

Groupon Inc., the world’s largest daily-deal company, reported first quarter sales and earnings slightly better than expected, sending the stock up 10% today.  The company lost one cent per share this quarter, and is expected to earn 20 cents per share for the full year.  Morgan Stanley Research commented, “While this quarter shows that the business is stabilizing, the company needs to show that it can grow profitability for shares to move meaningfully higher.”

Groupon fired CEO Andrew Mason two months ago, and is searching for a new CEO.

The stock has been trading sideways all year.  There’s price resistance at $6.50 per share.  With no growth strategy in place, lack of a CEO, and a string of annual net losses behind them, we urged investors in February and March to avoid Groupon shares.  (05/09/13)

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Cooper Tire & Rubber Presents Big Upside Earnings Surprise

(CTB, $25.19, down $1.15)

Cooper Tire & Rubber Co. reported first quarter earnings per share of 87 cents, far surpassing the consensus estimate of 66 cents.  Earnings were dramatically aided by  favorable raw materials costs, but falling revenues are still causing concern to Wall Street.

Earnings are projected to be flat this year; and to grow 5% the following year.  The dividend yield is 1.68% and the PE is 7.3.

The stock is trading between $23 and $28, with long-term price resistance at $28.  (05/09/13)

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News Corp. Beats Third Quarter Estimates

(NWSA,  $33.19, up $1.33 today)

Media conglomerate News Corp. tripled net income to $2.85 billion in its third quarter, slightly exceeding analysts’ estimates. Excluding one-time gains and charges, operating income was up 4%.

The company will separate into two stocks this year.  Standard & Poor’s Research says, the “newly named 21st Century Fox seems poised to us to become [a] credible player in [the] national sports arena, with entertainment and news still at [its] core.”

Earnings are projected to grow 17-19% per year for the next three years.  The PE is 19.9.  News Corp. stock broke through long-term resistance on January 2, and has been steadily climbing ever since.  (05/09/13)

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Electronics Arts Projects Ugly First Quarter

(EA, $21.25, up $2.84 today)

After disappointing Wall Street with a fourth quarter earnings miss today, Electronic Arts Inc. guided analysts’ estimates much lower for first quarter revenues and losses.  The company is going through a difficult transition as it searches for a new CEO, cuts jobs and expenses, and watches console sales continue to suffer in favor of mobile and online games.

Many Wall Street firms are issuing buy ratings on Electronic Arts today, over future prospects, and we think they’re nuts.  Standard & Poor’s Research seems to be more accurate in their assessment: they raised their recommendation on Electronic Arts from Strong Sell to Sell today.  The company lost $2.5 billion dollars in recent years, and the stock has never recovered from the 2008 Financial Meltdown.

On March 19, we told investors “With no clear growth plan in place, and no captain steering the ship, avoid Electronic Arts”.  We prefer that investors look for stocks in thriving companies in order to minimize risk and maximize capital gains.  (05/08/13)

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McDonald’s Continues Monthly Sales Decrease

(MCD, $101.27, down $1.02 today)

McDonald’s Corp.’s April sales decreased more than expected, hampered by weak global economies, and fear of the bird flu in Asia.  This continues a pattern of weaker U.S. same-store sales reported in February and March.

The company remains solidly profitable, and expects earnings to grow 7-10% per year for the next three years.  The dividend yield is 3.02%, and the PE is 18.

On April 19, we told investors that “the stock will likely trade between $98 and $104 in the very near-term,” which is exactly what it’s done.  Watch for continued sideways trading activity.  (05/08/13)

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Disney Reports Blowout Quarter 

(DIS, $65.39, down 68 cents today)

Walt Disney Co. reported a tremendous second quarter, slightly beating estimates, with earnings up 32% year-over-year.  Successes from the new Cars Land theme park feature, the Disney Fantasy cruise ship, and the movie “Oz the Great and Powerful”  contributed to strong growth.

Analysts expect Disney’s earnings to grow 13-15% per year for the next three years.  The dividend yield is 1.15% and the PE is 19.

The stock price has more than doubled in the last 20 months, and the chart is overextended.  New investors should consider buying on a pullback to support levels.  (05/08/13)

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Dow Chemical Receives $2.2 Billion Cash Settlement

(DOW, $34.29, up 28 cents today)

A 2013 arbitration award has come to fruition, as Dow Chemical Co. confirmed receipt today of $2.2 billion in cash from Petrochemical Industries Company of Kuwait.  Dow plans to use the cash to pay down debt or preferred stock.  Morgan Stanley commented, “This is very positive … since investors have been skeptical of this settlement given little visibility regarding the timing and form of payment.”

Earnings at Dow Chemical are projected to grow 18-25% per year for the next three years.  The dividend yield is 3.73% and the PE is 14.4.

On February 11, we said that Dow Chemical shares were a great value, with strong earnings growth, big dividend and low PE.  The stock appears ready to continue rising in the near-term.  The next price resistance is at $40.  (05/07/13)

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OfficeMax Disappoints with First Quarter Results

(OMX, $11.45, down 29 cents today)

Sales and operating margins fell worse than expected in OfficeMax Inc.’s first quarter, and full-year numbers will also be down year-over-year.  A special one-time dividend of $1.50 per share, payable July 2, helps to mitigate the disappointing earnings news.

OfficeMax is in merger talks with Office Depot.  On February 19, we told investors to avoid OfficeMax and OfficeDepot, due to an unfavorable earnings outlook.

The stock is still very low since the 2008 Financial Meltdown, but has risen from $4 to $11 in the last year.  Shareholders should use stop-loss orders to protect capital gains.  (05/07/13)

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DirecTV Blows Away Wall Street’s Earnings Expectations

(DTV, $61.59, up $3.63 today)

DirecTV reported much higher than expected first quarter results today, including surprising gains in revenues & earnings in the U.S. and Latin America, and $1.4 billion in share buybacks.   Another $2.6 billion in share buybacks has been authorized.

Earnings per share were previously expected to grow 8% this year, with quite a few Wall Street firms making recent downward revisions to estimates.  Investors should expect analysts to scurry as they adjust those numbers to conform with DirecTV’s bullish performance.

The stock has a PE of 12.8.  The share price completed a two-year trading range, and broke out on the upside in March.  Growth stock investors should make an immediate decision on whether to own shares in DirecTV.  (05/07/13)

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Medtronic Receives FDA Approval of Viva Heart Device

(MDT, $47.92, up 20 cents today)

Medtronic Inc., the world’s biggest supplier of heart-rhythm devices, won FDA approval for its Viva device, which resynchronizes the beating of the heart in heart failure patients.  The device provides cost savings for the patient, fewer hospital and doctor visits, and has a 25% longer battery life vs. older heart therapies.

Earnings are projected to grow 4-7% per year for the next three years.  The PE is 13, and has ranged from 9 to 16 in the last three years.  The stock is breaking out of a three-year trading range and heading toward resistance around $50.

Current shareholders should consider selling at $50 and moving their capital into a growth stock, such as this healthcare stock with projected earnings growth of 17-18% per year for the next three years.  (05/06/13)

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Tyson Foods’ Second Quarter Suffers From Price Inflation  

(TSN, $23.74, down $1.19 today)

Tyson Foods Inc. reported a disappointing second quarter, as drought conditions provoked higher grain, beef and chicken prices and lowered profit margins.  Earnings were down 43% year-over-year as consumers switched to less expensive chicken products.

Earnings are projected to grow 9%, 16% and 12% in the next three years.  The PE is 11.3, and has recently ranged from 6 to 13.

The stock price is up 65% since August, and has just passed the 2007 high of $24 per share.  Watch for the stock to trade between $23 and $25 in the near-term.  Current shareholders should use stop-loss orders to protect their gains from the recent long run-up.  (05/06/13)

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Consumer Spending Trends Hurt Sysco Corp. Earnings Report

(SYY, $34.12, down 54 cents today)

North American food distributor Sysco Corporation reported a year-over-year drop in third quarter earnings and a slight sales increase.  Chief Executive Bill DeLaney attributed the disappointment to a decrease in consumer spending in restaurant, and adverse weather conditions.

Earnings per share are expected to be down 1% this year, then up 10% per year for the next two years.

After trading sideways for over three years, the stock recently rose to the mid-$30’s.  Current shareholders are still waiting for the stock to regain its highs from 2004, and should use stop-loss orders to retain recent gains.  (05/06/13)

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

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