Stocks in the News — week of March 25, 2013 (March 29 update)

Ford Motor in New Class Action Lawsuit

“Ford Motor Co. (F, $13.15) was sued on behalf of customers in 14 states over claims that its vehicles are subject to unintentionally accelerating, and lack fail-safe measures to prevent crashes,” reports Bloomberg.  Plaintiffs are seeking compensation for the loss of value on vehicles which include Mustangs and Explorers.

On March 18 we told you “Earnings per share fell in 2012, and are expected to be flat in 2013, due to economic woes in Europe, a glut on the car market in South America, and margin pressures in China.”  The stock price has been trading sideways for over three years.

For a better auto industry investment, read our recent article, Investors Capitalize on Aging U.S. Vehicles. (03/29/13)

source:  Ford Sued in Class Action Claiming Sudden Acceleration  (Bloomberg)

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Citi Research Bullish on ConAgra

Citi Research reiterated a buy rating on ConAgra Foods Inc. (CAG, $35.81) yesterday.  Wall Street expects earnings per share to grow 17% this year.

After trading sideways for ten years, mostly in the $20-to-$30 range, ConAgra stock broke out in January and is up 21.4% year-to-date, from $29.50 to $35.81.

Our problem with Wall Street research is that the fundamental analysts seem to be housed on the opposite end of the building from the technical analysts.  We would never recommend a buy on a growth & income stock after a 20% growth spurt, and before it’s established a new base.  ConAgra may become an attractive purchase after a correction or a consolidation, but we wouldn’t be buyers at this time.  (03/29/13)

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Is it Time to Buy Apple?

Apple Inc. (AAPL, $442.66), once the darling of technology investors, has seen its share price fall from a high of $705 in Sept. 2012 to the current $442.  Individual investors often say that Apple fell because it was a high-priced stock.  But institutional investors actually sold shares because Apple has watched its earnings growth go from a 60% gain in 2012 to a projected year of no earnings growth at all in 2013.

The chart has not yet formed a base, indicating more potential risk to Apple’s share price.

We would wait until earnings were growing at an attractive pace, and the stock chart turned bullish, before buying Apple shares.  (03/29/13)

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Red Hat No Longer Red Hot

Red Hat Inc. (RHT, $50.30), the largest seller of Linux operating-system software, surprised analysts this quarter with a lower-than-expected backlog.  However, several large deals are in the works.  Nevertheless, revenue growth is slowing, and investors may need to get used to Red Hat commanding a lower PE.

Earnings per share are expected to grow 11% this year, and the PE is high at 36.  The stock’s been trading sideways for a year.  Based on the weak chart and the high PE, we would not be buyers of Red Hat.  (03/28/13)

If you own RHT shares, and want to know how we would proceed, send an email to research@goodfellowllc.com.

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Biogen Idec Wins FDA Approval for MS Treatment

Biogen Idec Inc. (BIIB, $190.04) won FDA approval for its first pill for multiple sclerosis.  The oral drug, Tecfidera,  “may generate $3.25 billion in annual revenue by 2017,“ says Bloomberg.   It reduced patients’ annual relapse rates by 49 percent.  The drug was also recommended for approval in the European Union on March 22.

Earnings per share are projected to grow 18%, 24%, and 19% in the next three years.  The stock has a PE of 25, in five-year range of 12-28.  However, the stock has had a $35 price run-up since it broke out of a trading range in late January.  We would not be buyers of BIIB at this time.  (03/28/13)

If you own BIIB and want to know how to proceed, send us an email at research@goodfellowllc.com.

source:  Biogen Gains U.S. Approval to Sell Its First Pill for MS (Bloomberg)

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Ericsson May Buy Microsoft’s IPTV Business

Ericsson Telephone Company (ERIC-ADR, $12.52) is in advanced talks to buy Microsoft’s (MSFT, $28.28) IPTV business, which delivers television over the internet.  Ericsson is a Swedish communications technology company, and the world’s largest provider of wireless network equipment and services, with annual revenue of $34 billion.

Estimates among eleven Wall Street analysts show Ericsson’s earnings per share growing 47%, 15% and 24% in the next three years.  The PE is 16, in a normal range of 10-27.

The stock price is on an uptrend, heading toward long-term price resistance at $15.  The company is attractive, but at Goodfellow LLC, experience has taught us not to recommend stocks trading under $20 per share.  We prefer this telecom stock for growth & income investors and growth stock investors.  (03/27/13)

Source: Ericsson Said to Discuss Buying Microsoft’s TV-Software Unit  (Bloomberg)

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Cliffs Natural Resources Plummets on Compounded Bad News

Cliffs Natural Resources (CLF, $18.18), the biggest US. iron-ore producer, is down after Morgan Stanley cut its recommendation to “underweight”.  The analyst commented, “We believe Cliffs’ iron ore business will be halved in coming years as new Great Lakes supply cuts into volumes and pricing.”

In addition, the company’s Australia mine is depleting its reserves; operating costs at its Wabush mine are prohibitive to profitability, and iron-ore prices are likely to weaken in second-half 2013.

The stock has traded from $100 per share down to $20 twice in the last five years, and has not yet formed a base during the current price drop.  We recommend that shareholders sell shares and find a growth stock in which to recoup their capital, like this diversified basic industry stock.  (03/27/13)

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EMC Loses Marketshare After 2011 Security Breach Generates Easier, Cheaper Technology

EMC Corp. (EMC, $24.00) is a provider of information storage, intelligence and security systems.  Their SecurID tokens are losing marketshare after a 2011 security breach paved the way for new competition via less expensive tablet- and smartphone-based security systems.

EMC is a multi-faceted tech company, with offensive strategies in place for revenue increases, margin expansion, and new product introductions.  Earnings per share are projected to grow 9%, 11% and 13% in the next three years.

The stock’s been in a sideways trading pattern for two-and-a-half years, between $20 and $30 dollars per share.  We prefer to invest in companies with better charts and higher earnings growth rates, like this technology company.  (03/27/13)

Source:  EMC Losing Ground as Smartphones Displace RSA Tokens  (Bloomberg)

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Customers Flee Wal-Mart Empty Shelves for Target, Costco  (Bloomberg)

Wal-Mart Stores Inc. (WMT, $74.60) has increased its number of stores by 13% over the last five years, while cutting its workerstaff by 1.4%.  As a result, stores don’t have enough people to stock the shelves, man the cash registers, or assist customers.  Long-time customers are giving up and going to other discount retailers to find the products they want to buy.

Wal-Mart is projected to grow its earnings by only 6% this year, and part of that increase comes from aggressive share repurchases, not from healthy increases in sales and operating margins.

We prefer this famous retailer for growth stock investors and growth & income investors.  (03/26/13)

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Sustained Turnaround in Home Prices

Home prices increased 8.08% for the one-year period ending in January, the largest comparable increase in over six years.  The trend benefits homebuilders, and companies that supply homebuilding materials, appliances, furniture and mortgages.

On Feb. 3, we told you that investors can take advantage of growth in the housing industry by investing in this homebuilder.  Our featured homebuilder is expected to grow earnings per share by 46% and 41% in the next two years.

The stock has since broken through a trading range and continues to climb.

(source:  Home Prices in 20 U.S. Cities Climb by Most Since June 2006  — Bloomberg)

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Sonic Corp. Reports Second Quarter Earnings

Sonic. Corp. (SONC, $12.73), the drive-in fast-food chain, experienced a decent second quarter, benefitting from increased national advertising and product innovation.  The company continued to repurchase shares, and paid down debt by about 4% for the quarter.

The stock has been trading sideways for six-and-a-half years.  The real problems are storecount — which has been falling for three straight years — a decline in store traffic, and a decline in average sales per customer.  Until Sonic increases its storecount and attracts more customers, we are not recommending SONC shares.  (03/26/13)

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United Therapeutics’ Hypertension Drug Denied

U.S. regulators have rejected the oral version of United Therapeutics’ (UTHR, $59.39) hypertension drug, for the second time since October.  The drug, Treprostinil, “is already approved to treat the life- threatening disorder by injected, intravenous and inhaled administration.”

Wall Street expects earning share show to grow 5%, 12% and 4% in the next three years.  The PE is 9.9.

The stock price has had an erratic sideways trading pattern for over five years.  While biotech stocks are in favor right now, there’s nothing exciting going on at United Therapeutics.  We recommend that biotech investors look at this growth stock for better returns.  (03/25/13)

source:  United Therapeutics Falls After Hypertension Pill Rejected  (Bloomberg)

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BlackBerry’s New Launch Sinks

Research In Motion’s (BBRY, $14.23) U.S. launch of its new BlackBerry has fallen short of expectations.  Citing poor weekend sales and pathetic marketing support, Goldman Sachs downgraded the stock from buy to neutral today.

“While we thought the international launch was solid, the U.S. launch is critical for BlackBerry’s ultimate success,” Goldman analyst Simona Jankowski commented.

Research in Motion is projected to lose money for the next three years.  We recommend that wireless technology investors look here for a better growth opportunity.  (03/25/13)

source: ‘Disappointing’ Blackberry Launch Spurs Goldman Downgrade (WSJ Blog)

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

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