Stocks in the News — week of Feb. 18, 2013 (Feb. 22 update)

Texas Instruments Lifts Dividend 33 Percent, Boosts Buyback (Bloomberg)

“With the addition to the [$5 billion] stock buyback program, the company has an outstanding authorization to repurchase $8.4 billion in shares, Texas Instruments said. The announcement yesterday marks the 10th straight year of dividend increases.”

Texas Instruments’ (TXN) share price is $33.77, and the new current dividend yield is 3.3%.

The company is expected to increase its earnings 5% in 2013, which isn’t enough for new investors to get excited about.  But long-term investors will see another earnings boost in 2014, with Wall Street expecting a 23% increase in earnings per share that year.

The share price is stuck in a ten-year sideways trading pattern, which rarely rises about $34 per share.  New investors should look for growth & income stocks with stronger earnings growth rates, like this famous blue-chip stock.  (02/22/13)

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Flawed F-35 Fighter Too Big to Kill as Lockheed Hooks 45 States  Bloomberg

“The Pentagon envisioned the F-35 Joint Strike Fighter as an affordable, state-of-the-art stealth jet serving three military branches and U.S. allies.”

“Instead, the Lockheed Martin Corp. (LMT) aircraft has been plagued by a costly redesign, bulkhead cracks, too much weight, and delays to essential software that have helped put it seven years behind schedule and 70 percent over its initial cost estimate. At almost $400 billion, it’s the most expensive weapons system in U.S. history.”

LMT is priced at $88.21, up $0.65 this morning.

Earnings per share (EPS) growth is projected to be less than 5% in 2013, and even lower in the two years after that.

The chart is neutral, bordering on negative.   Investors who own the stock for the 5.2% dividend would probably do better in Verizon (VZ) stock, which has a strong earnings growth, a bullish chart, and a large 4.6% dividend.

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The price of gold has fallen to last summer’s trading range of about $1550-$1625.  The big price run-up is definitely over.  Speculators should find another place to trade this year, because even short-term movements in stocks have a bigger potential percentage gain than this 4.8% trading range in gold.  (02/22/13)

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Wal-Mart Rises as Dividend Boost Eases Forecast Concerns (Bloomberg)

“Wal-Mart Stores Inc. (WMT) rose the most in four months after fourth-quarter profit topped analysts’ estimates and the company raised its dividend, overcoming concerns that tax increases would hurt earnings this year.”

The stock was up $1.99 this morning at $71.20.

We reported on Monday that Wal-Mart “had the worst sales start to a month in seven years as payroll-tax increases hit shoppers.”

We recommended that investors stay on the sidelines while the stock is in a neutral trading pattern of $68-$72.  Despite the good fourth quarter news, current quarter sales remain impacted by a decrease in shoppers’ take-home pay.

We continue to avoid Wal-Mart stock in favor of other stocks with robust earnings increases and better chart patterns, such as this prominent retailer.  (02/21/13)

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As Tesla Eyes Profit, Elon Musk Wants to Punch Himself in the Face (BloombergBusinessWeek)

“Instead of greeting this as a feedbag of good news, investors busted Tesla in the gut. They sent shares down about 5 percent after-hours. The main concerns seemed to be Tesla’s larger fourth-quarter loss—$89.9 million, vs. $81.5 million a year earlier—and a lack of clarity on how Tesla will get costs down.”

Tesla Motors Inc. (TSLA) is an electric vehicle manufacturer.  The company took huge losses in recent years, and is projected to earn about 13 cents per share in 2013.  That gives the stock a price earnings ratio (PE) of 270.  (For those of you not well-versed in these matters, these numbers are ridiculous.)

Clearly, this is a stock for traders, not for investors who care about fundamentals.

Tesla shares were trading this morning at $35.10, down $3.44.  They fell through support today, with the next support level at $33.  Traders should stay on the sidelines until the price firms up.  (02/21/13)

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Gold has fallen through $1650 support.  The current price is $1576.80.  It’s likely to close at a previous support level of either $1575 or $1600.

If you were looking to trade out within the $1650-$1700 range in the near-term, you’ve missed your opportunity.  It is too early for gold buyers to jump in.  Wait for new support to be established.  (02/20/13)

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[Chief Executive] Marissa Mayer Rolls Out a New Yahoo.com

“The revamped Yahoo.com, which goes live on Wednesday morning, represents Mayer’s boldest attempt yet to remake and update the Web giant she took over last July.”

 We’re not recommending Yahoo! Inc. (YHOO, $21.30) here because earnings per share are projected to drop 5% this year, and climb only 9% the following year.  Here’s a much better growing internet stock to invest in.  (02/20/13)

JPMorgan Leads U.S. Banks Lending Least Deposits in 5 Years (Bloomberg)

“The biggest U.S. banks including JPMorgan Chase & Co. and Citigroup Inc. are lending the smallest portion of their deposits in five years as cash floods in from savers and a slow economy damps demand from borrowers.”

Even though financial stocks are doing well right now, we’re not recommending JPMorgan Chase & Co. (JPM, $49.21).  Their earnings are projected to grow 4%, 6% and 8% over the next three years, and those numbers are too lackluster.

Look for financial stocks with strong projected earnings growth, such as this trust company, which is projected to grow its earnings per share 13% per year for each of the next three years.  The share price growth will be more sustainable because the balance sheet numbers are more attractive.  (02/20/13)

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BofA Wins Record Growth to 401(k)s From [its] Commercial Bank (Bloomberg)

“Bank of America has been trying to expand its retirement business since its 2009 acquisition of Merrill Lynch by selling to clients of the commercial bank…”

After four years of struggling through losses and minimal profits, Bank of America Corp. (BAC, $12.03) is likely to attain rising EPS  for the next three years.  Its 2013 PE is 12.

With rising EPS, a good PE, a decent chart, and the rising tide of financial stocks being in favor, it would be easy for investors to get excited here.  But BofA has its downside too.

Revenues, interest income, and net interest margin are all falling; and net charge-offs are expected to come in at $10 billion in 2013.

Look for financial stocks with better balance sheets — there’s no reason to choose BofA over the many more attractive financial stocks that are out there.  Consider instead this trust company, this mutual fund company or this investment company.  (02/19/13)

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Office Depot, Office Max Said to Weigh Merger Under Pressure (Bloomberg)

“Any deal struck may be challenged by the Federal Trade Commission, said David Balto, an antitrust attorney in Washington who was the FTC’s director of policy for six years ending in 2001. He worked on the FTC’s lawsuit that stopped Staples from acquiring Office Depot in 1997.”

Office Depot (ODP, $4.59) has more recent years with losses than profits.

Office Max (OMX, $10.75) has growing earnings, but the long-term debt ratio is 72%.

The third competitor in office supply retailers is Staples Inc. (SPLS, $12.95).  Earnings projections are flat.

There is no compelling reason to own any of these stocks.  Stick with companies with consistent earnings growth and strong balance sheets.  (02/19/13)

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Wal-Mart Executives Sweat Slow February Start in E-Mails (Bloomberg)

“Wal-Mart Stores Inc. had the worst sales start to a month in seven years as payroll-tax increases hit shoppers already battling a slow economy, according to internal e-mails obtained by Bloomberg News.”  Bloomberg

Wal-Mart (WMT, $69.30) shares broke out of a very long-term trading range last summer, rose to $77.50, and are now trading roughly $68-$72.  The chart’s neutral, and therefore we’re not recommending a buy or sell right now.  (02/19/13)

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Apple Said to Have Formed Team Developing Wristwatch Computer (BusinessMirror)

“Without a revolutionary new gadget that commands a higher price, investors are concerned about falling margins and increased competition,” reports BusinessMirror.

Apple Inc. (AAPL, $460.16) shares have fallen greatly with Wall Street projections that earnings will only grow 1% in fiscal 2013.  The stock may be establishing support at $440, but it’s still too soon to sell.  Growth stock investors should look for a stock with a stronger earnings growth rate, like Google Inc. (GOOG, $792.89).  (02/19/13)

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Facebook Gets a Multibillion-Dollar Tax Break  (BloombergBusinessWeek)

“Even though Facebook (FB) reported $1.1 billion in pre-tax profits from U.S. operations in 2012, it will probably pay zero federal and state taxes—and even receive a federal tax refund of about $429 million—according to a Feb. 14 statement from Citizens for Tax Justice,” reports Bloomberg.

Facebook (FB, $28.32) shares have a price earnings ratio (PE) of 50, and a projected 2013 earnings growth rate of 8%.  With a high PE and a neutral chart, we’re not recommending FB shares at this time.

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Questions?  Contact Crista Huff, President, Goodfellow LLC at research@goodfellowllc.com.

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