Stocks in the News — week of March 4, 2013 (March 8 update)

Pandora CEO’s Surprise Exit Overshadows Upbeat Results  (Bloomberg)

“Joe Kennedy resigned unexpectedly as chairman and chief executive officer of Pandora Media Inc. (P, $13.84), the dominant Internet radio service, after nine years at the helm.”

The stock price surged in after-hours trading yesterday on reports of a 54% increase in fourth quarter revenue, pulled back upon announcement of Kennedy’s resignation, then rose again this morning.

Pandora has been taking annual losses for years now, and expects to lose money again this year.  At Goodfellow LLC, we never recommend companies that are losing money.  We suggest that you avoid Pandora stock.  (03/08/13)

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News Corp. to Start Cable-Sports Channel in August to Rival ESPN  (Bloomberg)

News Corporation (NWSA, $30.25) will start a national cable sports network called Fox Sports 1.  The network will air in August, and will be available to more than 90 million pay-TV homes.

Fox Sports 1 will initially sustain losses, but could become a multi-billion dollar asset in a few years.

Bloomberg reports, “News Corp. has rights to Pac-12 Conference and Big 12 Conference college games and owns at least 20 regional sports networks. The company also has TV rights to soccer’s World Cup in 2018 and 2022.”

Is News Corp. a good investment?  Read our recent report on NWSA.  (03/08/13)

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J.C. Penney Cutting 2,200 Jobs as Sales Plunge (Bloomberg)

J.C. Penney (JCP, $14.75) CEO Ron Johnson is cutting an additional 2,200 jobs to trim costs.  19,000 J.C. Penney employees have also lost their jobs in the past year.

“Customers have been alienated by marketing missteps, a failed attempt to transition away from sales and coupons, and Johnson’s plan to turn most stores into collections of boutiques,” reports Bloomberg.

We have been bearish on J.C. Penney shares after the company reported a full year loss, expected losses in the coming year, falling inventories and rising accounts payable.  (03/08/13)

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Time Warner Will Split From Magazine Unit in Third Major Spinoff (Bloomberg)

“Time Warner Inc. will spin off its magazine business later this year, turning the nine-decade-old publisher of TimePeople and Sports Illustrated into a separate publicly held company,” reports Bloomberg today.

Time Warner Inc. (TWX, $56.33) previously spun off Time Warner Cable and AOL in 2009.  The magazine business has 21 publications, and its revenues have been on a multi-year decline.  After the spin-off, Time Warner will focus on its very profitable film and tv businesses.

Read our recent report on TWX.

As a reminder, we have also written about News Corporation’s (NWSA, $29.87) upcoming spin-off of its publishing business this year.  News Corp. owns The Wall Street Journal, several major newspapers in the U.K. and Australia, books and magazines.

The remaining Fox Group will focus on entertainment, film and t.v. businesses, including Fox and ESPN enterprises.

Read our February 2013 report on NWSA.  (03/07/13)

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PetSmart Fourth Quarter Report Reveals Disappointing Sales

PetSmart (PETM, $61.63), the U.S. and Canadian pet supply retailer, reported fourth quarter sales with a weaker gain in same-store comps than Wall Street expected.  And while earnings came in slightly higher than forecast, the increase was due to favorable taxes and equity income.

Morgan Stanley Research commented today that “PetSmart has instantly become a ‘show me’ story despite years of strong execution.”

Recent Wall Street forecasts showed PetSmart growing their earnings about 11-to-14% per year for each of the next three years.  Those numbers are likely to be revised downwards based on this week’s earnings report.

The stock price had a strong two-year run-up through September 2012.  The share price has been slowly declining since then, and has not established a new base.  (03/07/13)

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Verizon Seeks Full Control of Industry’s Leading Carrier (Bloomberg)

Verizon Communications Inc. (VZ, $47.38) has a joint venture with Vodafone Group PLC (VOD) wherein Verizon owns 55% of Verizon Wireless.

The two companies have been in discussions for possible changes in ownership for several years now.  These talks include Verizon potentially purchasing Vodafone’s stake in Verizon Wireless for about $115 billion, or a complete merger of Vodafone and Verizon.

Verizon Wireless is the most profitable and fastest-growing major wireless carrier in the U.S.

Verizon has projected earnings growth of 20%, 13% and 7% in the next three years, a dividend yield of 4.32%, and an extremely bullish chart that’s showing signs of an immediate breakout on the upside.

Read our recent report on Verizon Communications (VZ).


Vodafone Group PLC (VOD, $27.03) is a worldwide mobile communications company with annual revenues of $74 billion.

Vodafone has projected earnings per share growth of 4%, 2% and 1% in the next three years, which is quite stagnant.

The stock pays a hefty 5.5% dividend.

Vodafone stock has been in a two-and-a-half-year trading pattern which has recently been edging lower.

We are not recommending that investors own shares in Vodafone Group.  We don’t see any reason to own stocks that are lacking earnings growth.  Current shareholders might trade out of Vodafone here on a short-term high around $27, into a stock with stronger earnings growth.


AT&T (T, $36.40) is another attractive telecom giant, but nowhere near as successful in wireless customer growth as Verizon.

Wall Street projects AT&T to grow earnings per share 9%, 8% and 7% in the next three years.  These are good numbers for a company with over $100 billion in annual revenue, but not nearly as good as Verizon’s earnings growth.

The dividend yield is 4.92%.

The chart is relatively bullish.  The stock broke out of a trading pattern on the upside last week.  There’s resistance at last fall’s high of about $38.50, and more resistance at $40.

We recommend that investors hold their AT&T shares.  (03/06/13)

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J.C. Penney Falls After Vornado Said to Sell Shares  (Bloomberg)

Vornado Realty Trust (VNO) sold ten million shares of J.C. Penney Co. (JCP) today.

We told you on Feb. 28 to avoid shares in JCP after the company reported a full year loss, expected losses in the coming year, falling inventories and rising accounts payable.

We would rather invest in growing, thriving retailers, like Macy’s and this other popular fashion stock.  (03/05/13)

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Qualcomm Boosts Dividend by 40%, Sets $5 Billion Buyback (Bloomberg)

Qualcomm (QCOM, $68.13) is the largest seller of semi-conductors for mobile phones.

Although revenue and net income growth has been rapid in recent years, earnings per share growth is now projected to slow down from  21% in 2013 to 8% and 5% in 2014 and ’15.  However, the new share repurchase plan will serve to somewhat increase those numbers.  Watch for Wall Street earnings estimates to be revised upwards.

The new dividend is 35 cents per share, per quarter, and the new yield is 2.05%.

The stock price just spent seven years trading between $30 and $60, then broke out of that trading range in January 2012.  The stock has a PE of 15.1, which is quite low in its ten-year range of 15 to 54.  Qualcomm has no long-term debt.

2013 has been a good year for semi-conductor stocks, which have been performing better than technology stocks in general.

While the stock does not meet Goodfellow LLC investing guidelines because of slow future earnings growth, it is admittedly quite attractive at the current price.  (03/05/13)

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Apple Could Return More Cash to Shareholders (Morgan Stanley Research)

Following an analyst meeting with CEO Peter Oppenheimer, Morgan Stanley suggests that Apple (nc. (AAPL, $426.50) could increase its dividend to a 6% yield.  The current yield is 2.48%.

Apple is as confident as ever about the future pipeline of new products and services, including the much-talked-about iWatch.  However, the stock price is still falling, and hasn’t established a new base.  We are not buyers of AAPL at this time.  (03/04/13)

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Caterpillar to Cut Jobs in Belgium  (Townhall Finance)

Caterpillar’s (CAT, $90.21) Belgium plant will lay off 1400 workers, which is 38% of its workforce there.  In addition to a poor European economy, costs are prohibitive because environmental rules in Belgium make the production of machinery expensive and complicated.  The company has decided that it will be cheaper to import their machines from elsewhere into Belgium.

Caterpillar’s earnings are expected to fall a little this year, and the chart is neutral.  We are not recommending CAT at this time.  (03/04/13)

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