Stocks in the News — week of April 29, 2013 (May 3 update)

Goodfellow LLC’s “Stocks in the News”

seen on Townhall Finance, heard on Ransom Notes Radio

 

Adidas Reports Record Gross Margins  (ADDYY, $55.99, up $3.96 today)

“Adidas reported first-quarter profit that beat estimates and said its gross margin widened to a record, sending the shares to the highest level ever,” reports Bloomberg.  The company is on track to exceed its operating margin goals for 2013.

Adidas also had upside revenue surprises in North America and Latin America.  We reported in March that Adidas plans to attain first place in the running shoe market in the U.S., within five years.  Citi Research says, “…Adidas is one of a small group of genuine global growth apparel retailers and brands that is capable of GDP-plus revenue growth.”

Earnings are projected to be down 10% this year, then climb 19% and 55% in the next two years.  The PE is 12.8.  Read our recent report on Adidas.

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LinkedIn:  Good Quarter, Weaker Outlook  (TDC, $180.55, down $21.12 today)

LinkedIn Corp., the world’s biggest online professional-networking service, reported a good first quarter.  However, the company announced downward revisions to its second quarter and full-year revenue estimates, disappointing Wall Street.  LinkedIn appears to be trailing in mobile advertising growth, which was a catalyst to Facebook’s upside earnings surprise this week.

Wall Street previously expected LinkedIn’s earnings to rise 53-55% per year over the next three years.  The PE is 135.

There is price support at $180, and then again at $170.   Shares have risen rapidly, and shareholders should use stop-loss orders to protect profits.  (05/03/13)

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Teradata Corp. Reports Disappointing Quarter & Full-Year Prospects  (TDC, $49.47, down $3.59 today)

Data-Storage company Teradata Corp. reported a disappointing first quarter, with lower revenues.  Gross margins are suffering as large deals are expected to close later in the year and earnings are currently derived from lower-margin service businesses.  However, the revenue pipeline looks attractive.

Earnings are projected to grow in the low single digits this year.  The PE is 16.3.

Teradata shares have lost two years of price gains in recent months, falling toward price support at $48 today.  Impatient investors should consider selling on a bounce up to $55.  (05/03/13)

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Facebook Thrives with Mobile Advertising  (FB, $28.54, up $1.11 today)

Facebook Inc., the global social network icon, reported first quarter sales up 38% from a continued surge in mobile advertising.  “So far this year, Facebook has introduced new software for smartphones, added tools for marketers and revamped News Feed, the first thing members see when logging onto the network of more than 1 billion,” reports Bloomberg.  Facebook users grew 23% and Mobile users grew 54%.

Earnings per share are projected to rise 8% this year, then 37% next year.  The PE is 50.  Morgan Stanley Research says, “We believe investors should aggressively build positions now for catalysts approaching over the next 6-12 months,” and that “management is effectively balancing user happiness with new revenue products.”

In February, we told investors to avoid Facebook shares when the price was on a downturn. The recent share price correction appears to be ending, and the stock could pretty easily retrace to the recent high of $32 in the near-term.  (05/02/13)

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Ford Leads U.S. Carmakers in April Sales Surge  (F, $13.44, up 6 cents today)

U.S. auto makers reported their first quarterly increase in market share gains since 1993, led by Ford Motor Co. with sales up 18% in April.  The company will be increasing production of its F-150 pick-up trucks.

Earnings are projected to fall 1% this year, as troubled global economies continue to pressure margins; then rise 19% in 2014.  The PE is 9.6 and the dividend yield is 2.97%.

The stock has been in a trading range this year, and looks ready to push up against price resistance at $14.25.  The bull-case scenario is that the stock could retrace the January 2011 high of $19.  (05/02/13)

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GM Reports First Quarter Earnings  (GM, $31.50, up $1.32 today)

“After losing more than $18 billion in Europe since 1999, General Motors Co. narrowed its first-quarter loss in the region,” reports Bloomberg. In addition, General Motors’ April sales rose 11%.

Earnings are expected to grow 3% this year, then 29% next year.  The PE is 9.4, and the stock does not pay a dividend.

The chart has turned bullish and appears ready to rise into the low-to-mid $30’s.  While the chart looks good, we like Ford shares better with their hefty dividend and much larger increase in April sales.  (05/02/13)

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MasterCard First Quarter Beats Earnings Estimates  (MA,  $538.05, down $14.88)

Global payments company MasterCard Inc. reported first quarter net income up 12% year-over-year and revenue up 8%.  Share repurchases came in much higher than anticipated.

Earnings are projected to grow 16-19% per year for the next three years.  Morgan Stanley has a $590 price target on MA shares.  Read more about MasterCard Inc. here.  (05/01/13)

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Humana Beats First Quarter Earnings Estimates  (HUM   $77.44, up $3.33)

Health & benefits company Humana Inc. reported a big first quarter earnings beat today.  The company is adding Medicare Advantage customers at a brisk rate.

Humana guided full-year earnings growth expectations up to about 11% in 2013; dramatically slowing in the two years thereafter.  The stock has been trading sideways for two years.

We prefer to invest in stocks with growing earnings per share and bullish charts.

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Time Warner Outperforms Expectation in First Quarter  (TWX  $59.31, down 47 cents)

The overriding theme of this season’s earnings reports has been earnings coming in higher than estimates, and revenues coming in lower.  This holds true again today for Time Warner Inc.  Corporate America continues to produce more income with less revenue by cutting expenses and increasing share buybacks.

Going forward, Time Warner’s earnings are projected to grow 12-16% per year for the next three years.  The company plans to spin-off its magazine business later this year, which includes People magazine and Sports Illustrated.

Read about the upcoming spin-off of Time Warner’s magazine business, and our latest research report.  (05/01/13)

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Starwood Hotels Reports Blowout First Quarter  (HOT, $64.73, up $2.27 today)

Starwood Hotels & Resorts Worldwide Inc. reported first quarter earnings per share of 76 cents, handily beating the 53 cent consensus estimate, “driven by greater Bal Harbour residential sales and lower [expenses],” reports Citi Research.  Starwood, operator of Sheraton and Westin hotel brands, plans to sell $3 billion of hotels, enhancing an already-large cash position.  Investors should expect increased earnings estimates, additional share repurchases and dividend increases going forward.

Despite very slow projected earnings growth this year, the chart is bullish.  We recommended a “trading buy” on Starwood shares on April 4, when the stock was at $61.12, and we still expect shares to retrace the previous high of $75 this year.  (04/30/13)

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MeadWestvaco Hamstrung by Expenses  (MWV, $34.78, up 49 cents today)

Global packaging company MeadWestvaco Corp. disappointed Wall Street with a big first quarter earnings miss due to higher costs.  The company is additionally lowering earnings guidance for the second quarter.  Earnings came in at 16 cents per share vs. the expected 24 cents; however, revenues were strong.

MeadWestvaco announced cost reduction plans, including plans to sell a European business, and to refocus & streamline other operations.  Earnings per share were previously expected to grow over 30% this year.  Watch for some serious downward revisions.

The stock is in a trading range of $34 to $38.  Shareholders should lower expectations now, and protect profits.  (04/30/13)

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Pitney Bowes Disappoints in First Quarter  (PBI, $13.60, down $2.60 today)

Pitney Bowes Inc., global provider of software and hardware products & services, announced disappointing first quarter earnings today.  Declining mail use in America is harming the bottom line, and forcing the company to shift to lower-margin products and services.

The company slashed its dividend in half today, and guided full-year earnings estimates down as much as 20% year-over-year.

While Pitney Bowes remains a solidly profitable company with a good dividend and a low PE, the problem is that there is no proven growth plan in place.  The stock reached ten-year lows in January; it fell through support today, and has recently traded between $13 and $15.50.  Shareholders should have an exit strategy.  Mine would be to sell at $14.

Investors should focus on companies with strong projected earnings growth.   (04/30/13)

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It’s not time to buy Apple Inc.  (I only bring this up because it was such a famous growth stock.)

Apple Inc. (AAPL, $430.12) has two stock market problems:  a bearish chart, and falling earnings per share.  At Goodfellow LLC, we only recommend stocks with bullish charts and rising earnings per share.  Experience has shown us that investors who actually want to make money will do better with the latter strategy.  (04/29/13)

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Valeant Pursues Actavis Merger in Game of Cat and Mouse

(ACT, $105.48, up $4.54 today; VRX, $76.22, up $3.06 today)

Talks of a $13 billion acquisition of Actavis Inc. by Valeant Pharmaceuticals are currently on hold as both sides spar over pricing.

Valeant is a rapidly growing specialty drugmaker, in the areas of dermatology, neurology and ophthalmology.  Valeant’s earnings are expected to grow 24% this year, and the PE is 13.6.  Read our recent report on VRX.

Actavis develops and markets generic and branded pharmaceutical products.  Its earnings are projected to grow 35% this year, then slow dramatically thereafter.  The PE is 12.9.  After the recent run-up in the stock price, we would encourage shareholders to use stop-loss orders to protect profits.  (04/29/13)

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Gilead Sciences and Bristol-Myers Cure Hepatitis C

(BMY, $39.94, down 34 cents today; GILD $51.11, up 13 cents today)

A combination drug therapy for Hepatitis C has cured 100% of patients in a clinical trial.  The treatment is unlikely to be approved by government agencies because Gilead Sciences Inc. and Bristol-Myers Squibb Co. are not in joint pursuit of a late-stage study.  However, it is expected that doctors might pursue off-label therapy for their patients.

Gilead Sciences develops therapies for immune deficiency, cardiovascular, and respiratory problems.  Earnings are projected to grow 4%, 42%, and 48% over the next three years.  The PE is 25. The stock price is up a tremendous amount and probably needs to experience a pullback.  Shareholders should use stop-loss orders.

Bristol-Myers is a global pharmaceutical company with $17 billion in revenue.  The company is profitable, but lacks consistent growth of revenue and income.  Healthcare stocks are currently leading the market, and a rising tide lifts all ships.  However, as soon as the run-up is over, I would encourage shareholders to move on to a growth & income stock with actual earnings growth.  (04/29/13)

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2012 Motorola Mobility Purchase Causing Heartburn for Google  

(GOOG, $820.50, up $19.08 today)

“Google Inc.’s $12.4 billion purchase last year of mobile-phone pioneer Motorola Mobility Holdings, partly for its trove of more than 17,000 patents, is showing signs it wasn’t much of a bargain,” reports Bloomberg.

Myriad patent lawsuits are not reaping the cash rewards that Google expected, and have also exposed Google to increased anti-trust scrutiny.  The biggest benefit of the patent acquisitions thus far is that they aren’t owned by a competitor.

Despite Motorola’s drag on profitability, Google is expected to increase earnings 16%-18% per year over the next three years.  The PE is 17.7.  Google has $48 billion in cash-on-hand, and can therefore easily weather the storm with the Motorola Mobility acquisition. The stock broke past long-term resistance at $700 last fall, and it’s currently trading between $760 and $840.  (04/29/13)

Read our recent report on Google Inc.

 

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

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