Stocks in the News — week of August 12, 2013 (August 16th update)

 

Goodfellow LLC’s “Stocks in the News”

seen on Townhall Finance, heard on Ransom Notes Radio

 

Applied Materials Names New CEO

Semi-conductor equipment maker Applied Materials Inc. (AMAT) announced third quarter earnings a fraction below Street estimates, and named President Gary Dickerson as the new CEO.

Applied Materials’ earnings are projected to fall this year, then increase rapidly, for a compounded annual growth rate of 32% per year over the next three years.  S&P and CitiGroup reiterated a rosy future for the company in research reports today.

The dividend yield is 2.5% and the 2014 PE is 14, in a normal range of 14-32.

The shares appear to be completing a long-term trading pattern, and preparing to climb toward resistance at $20.  This undervalued but volatile stock could appeal to traders and most stock investors.

Goodfellow LLC Rating:  Public, Volatile, Value, Aggressive Growth, Growth & Income.  (08/16/13)

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Sanofi: Undervalued and Downtrodden 

French healthcare company Sanofi S.A. (SNY) reported second quarter earnings way below consensus.  Zacks reports that problems include “generic competition, European pricing pressure and … inventory mismanagement in Brazil.”  Patented drugs continue to show strength.  Zacks and S&P are bullish on Sanofi’s new drug pipeline to treat M.S., diabetes, and colorectal cancer.

Earnings are projected to fall 13% or more this year, then rebound next year.  The annual June dividend yield is in the 2-3% range, and the PE is 14.9.

Sanofi’s stock broke past long-term resistance at $50 in March, and is trading between $50 and $56.  Value investors should jump in below $52.

Goodfellow LLC Rating:  Public, Value, Growth & Income.  (08/16/13)

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A Top Pick in a Beleaguered Sector

Nordstrom Inc.’s (JWN) second quarter results beat estimates with strong eCommerce sales, sluggish retail revenues, lower operating expenses and tight inventory control.

Morgan Stanley commented, “a [consumer] reallocation of discretionary dollars from apparel to other categories … appears to be hurting softline retailers at every price point.  We see Nordstrom as a core holding and would add to positions on pullbacks…”

Earnings are projected to grow 3, 12, and 13 percent over the next three years.  The PE is 16 and the dividend yield is 2.1%.

Nordstrom stock has been trading between $57 and $63 since early May, and is bouncing at support levels today.  Traders and investors should jump in below $58.

Goodfellow LLC Rating:  Public, Trading Buy, Growth & Income.  (08/16/13)

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Read “Stocks in the News” from Thursday, August 15, featuring Wal-Mart, Cisco Systems, and Agilent Technologies.

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Macy’s Stuns Analysts with Second Quarter Profit Miss

(M, $46.53, down $1.97 midday)

Nationwide retailer Macy’s, Inc., which also owns Bloomingdale’s, saw its stock bounce  at support levels today as second quarter earnings missed analysts’ estimates for the first time in over six years.  Margins were pressured by cool spring weather and a poor economy, causing increased markdowns.  Share repurchases came in better than expected at $448 million.

Macy’s has revised its full-year earnings growth estimates down to 11%, from 13%. The revised PE is 12.0 and the dividend yield is 2.16%.

Shares are up 17% since we began urging Ransom Notes Radio listeners to buy Macy’s stock in February.  Growth & income investors should accumulate shares below $48, and growth stock investors should look elsewhere for strong growth opportunities.

Goodfellow LLC Rating: Accumulate, Growth & Income, Value.   (08-14-13)

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MannKind’s Dry-Powder Insulin Therapy Meets Goals

(MNKD, $8.03, up $1.17 midday)

Biopharmaceutical maker MannKind Corporation reported today on two Phase III studies of its dry-powder insulin inhaler device, called AFREZZA, which maintains blood glucose levels in diabetes patients.  The ultra rapid-acting mealtime insulin therapy achieved success in controlling hypoglycemia, fasting blood glucose levels, and body weight.  Both studies achieved their primary efficacy endpoints and were more effective than insulin and oral diabetes treatments.

After a long string of net losses, MannKind may begin earning a profit in 2015. The stock is in a trading range of $6 to $8 per share, and could appeal to aggressive growth investors or traders.

Goodfellow LLC Rating: Hold, Public.  (08-14-13)

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U.S. Attorneys to File Criminal Charges Against Former JPMorgan Chase Employees in “London Whale” Case

(JPM, $54.34, up 5 cents midday)

The U.S. attorney will announce charges of wire fraud, falsifying books and records, making false SEC filings, and conspiracy today against two former J.P. Morgan Chase & Co. employees.  The men allegedly manipulated a credit portfolio to hide half a billion dollars of losses, causing JPMorgan to overstate first quarter 2012 earnings by several hundred million dollars.

Earlier this year, we encouraged investors to look elsewhere for financial stocks, based on weaknesses in JPMorgan’s capital plan, and very slow projected earnings growth.

The stock is on an uptrend, trading between $54 and $57.  We encourage investors to look elsewhere for financial stocks with strong earnings growth and fewer legal problems.

Goodfellow LLC Rating: Public.  (08-14-13)

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New Cancer Drug Passes Phase III Hurdle

Eli Lilly and Company (LLY, $54.96) stock is up today on the surprising news that the company’s new squamous non-small cell lung cancer treatment has increased survival rates in stage IV cancer patients in a Phase III study.  No potential earnings from the drug have been factored into Wall Street projections because the drug failed in a previous cancer trial.

Results will be presented in 2014, followed by applications for regulatory approval.

Lilly’s earnings per share are expected to rise 22% this year, then fall 33% in 2014, reflecting the loss of patent protection on the antidepressant Cymbalta.  However, the company has many drug therapies in its research pipeline, and is gaining ground in Japan, emerging markets, animal health, diabetes and oncology.  The dividend yield is hefty at 3.5%.

The stock price is recovering from the 2008 Financial Meltdown, currently trading this year between $49 and $58.

Goodfellow LLC Rating:  Public.  (08/13/13)

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Yum! Brands Stakes Claim in China 

Yum! Brands, Inc. ($72.97) reported July same-store sales down 13% in China, due to poultry supplier issues and macroeconomic weakness.  Pizza Hut sales were up 3%, but KFC sales were down 16%, worse than expected.  Yum! Brands earns nearly 50% of profits from China, and expects a rapidly improving Chinese economy in the coming decade.

Yum’s earnings per share are project to fall 5% this year, then rise 24% next year.  The PE is 23 and the dividend yield is 1.9%.

The stock’s been trading between $63 and $74 for 18 months, and appears ready to break out on the upside in the near future.

Goodfellow LLC Rating:  Trading Buy, Public.  (08/13/13)

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Housing Boom Gives Home Depot a Fresh Coat of Paint

The Home Depot, Inc. (HD, $79.44) will report second quarter earnings on August 20.  Morgan Stanley is expecting a 6.5% increase in comparable store sales growth, up from a 4.3% increase in the first quarter.  Strong real estate trends and favorable weather are contributing to repair & remodel activity.

Earnings growth projections at Home Depot have increased substantially since we last recommended the stock in March, to 17% growth in each of the next two years.  The dividend yield is 2.0%.  Standard & Poor’s Research says, “Favorable demographic trends, such as the aging of houses and low interest rates, should help support home remodeling efforts over the long term.”

The stock is up 15% since we said to buy it at $66 this year and appears ready to break past resistance at $81 in the near-term.

Read our August 12 report on Home Depot.  (08/13/13)

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Dole Food Agrees to go Private

(DOLE, $13.45, up 64 cents midday)

Dole Food Company has agreed to allow CEO David Murdock, who owns a 40% stake in Dole, to purchase all remaining Dole shares for $13.50 per share and assume all debt, thus taking the company private.  Mr. Murdock previously took the company private in 2003 and took it public again in 2009.

The deal is expected to close in the fourth quarter.  Current shareholders will likely make more money by selling into today’s rally and reinvesting in another growth opportunity, rather than letting their equity languish through the fourth quarter with no additional upside potential.

Goodfellow LLC Rating:  Sell, Public.  (08/12/13)

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Board Member Could Plummet J.C. Penney Stock

(JCP, $12.71, down 16 cents midday)

Shares in J.C. Penney Company are hitting ten-year lows as hedge fund manager and Board member Bill Ackman urges the company to replace its Chairman, amid revolving-door changes in the CEO position.  Ackman’s fund Pershing Square Capital Management owns nearly 20% of J.C. Penney stock, and Ackman is ironically driving the share price down with his high-profile activist agitation.  But the agitation pales in comparison to the devastation Ackman could cause by selling his shares.

The company is projected to have annual net losses for at least another three years, and cash flow problems are severe.

We told Ransom Notes Radio listeners to sell their shares in J.C. Penney five times this year.  There is no honor in going down with this sinking ship.

Goodfellow LLC Rating: Sell, Volatile, Public.  (08/12/13)

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District Court Weighs in on Dodd-Frank Interchange Fees

(V, $178.90, down 91 cents midday)

Morgan Stanley reported today on a Friday visit to Visa Inc. to discuss a District Court ruling over interchange fee provisions of the Durbin amendment to Dodd-Frank.  The ruling could impact Visa’s 2014 earnings by 11%, although the company has mitigating  plans in place for a range of outcomes.

The market seems to have placed too much emphasis on the litigation.  Morgan Stanley commented, “The opportunity to displace cash [transactions] in emerging markets remains a meaningful opportunity and governments have an incentive to increase electronic transactions for tax purposes.”  Government relations is Visa’s fastest growing business segment.

Despite new caps on interchange fees, Visa’s earnings projections have increased again in the last six weeks, to expected growth of 22, 17, and 17 percent over the next three years.  The stock has had a pullback and is resting at the bottom of a trading range between $176  and $195.   See our recent comments and research report on Visa Inc.

Goodfellow LLC Rating:  Trading Buy, Accumulate, Aggressive Growth. (08/12/13)

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