Stocks in the News — week of 06/03/13 (06/07/13 update)

TiVo Wins Lawsuit on DVR Patent Infringement

(TIVO, $11.10)

TiVo Inc. stock fell dramatically today after winning a patent lawsuit but receiving a smaller monetary award than expected.  Google’s Motorola Mobility, and Cisco Systems Inc., will pay TiVo $490 million.  TiVo also announced a $100 million increase of its share repurchase plan.

TiVo, maker of digital-video recorders, almost always takes annual losses, and the next three years are projected to follow suit.  The company has over $1 billion in cash, so it’s in a position to keep losing money without shutting its doors.

The stock has been trading between $4 and $14 almost exclusively for ten years.  After  experiencing a false break-out yesterday, the stock fell through support today.  It’s acting more like the weather in Colorado than like an investment.  Shareholders should look for better investments.  Hint: invest in companies that earn profits.  (06/07/13)

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Gap Brands Exceed May Sales Estimates

(GPS, $42.09)

Specialty-retailer Gap Inc. pleased Wall Street with a May same-store sales increase of 7% that doubled analyst estimates.  Gap and Old Navy brands surged much higher than  Banana Republic performance.

Gap’s earnings are projected to rise 17, 10 and 10 percent in the next three years.  The PE is 15.3, in a five-year range between 6 and 16.  The dividend yield is 1.44%.

The stock is trading between $39 and $42, and the chart is bullish.  The market likes retail clothing brands this year, and the stock is likely to fare well.  (06/07/13)

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LyondellBasell Allocates More Cash Toward Dividends and Buybacks

(LYB, $64.87)

LyondellBasell Industries announced that it will use its strong free cash flow to increase its dividend by 25%, and will spend almost $4 billion to repurchases up to 10% of outstanding stock.  LyondellBasell is a globally-dominant chemical company with headquarters in Houston.

Earnings per share are on a strong multi-year uptrend, and are projected to grow 16 and 17 percent in the next two years.  The PE is 10.7, normally ranging between 6 and 13.  The dividend yield is 3%, and potentially much higher when special dividends are declared.

The stock traded between $55 and $66 this year, and appears immediately ready to break out on the upside.  We would buy LYB shares for growth & income portfolios and growth stock portfolios.  (06/07/13)

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Returning CEO Plans P&G Reorg

(PG, $76.82)

Proctor & Gamble Company, “the world’s largest consumer-products maker, will streamline its businesses into four industry-based groups as recently returned Chief Executive Officer A.G. Lafley works to reignite growth,” reports Bloomberg.  CEO Lafley remarked, “these organization changes will help us operate better and faster.”

Lafley returned as CEO in May to shore up stagnant earnings.  Competitors were stealing market share, with Unilever’s sales growth outpacing P&G’s four-fold in the past three years.  A $10 billion cost-cutting plan remains in effect through 2016.

On May 24, we told investors to stay on the sidelines, due to the high PE, slow earnings growth, and neutral chart.  The stock’s still trading between $76 and $83.  There have been no material changes to the outlook for the stock price.  (06/06/13)

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Smucker Fourth Quarter Earnings Beat

(SJM, $98.39)

J.M. Smucker Company reported fourth quarter earnings of $1.29 per share, above the consensus estimate of $1.15, led by strong coffee volume and profit growth.  Revenues were down 1% year-over-year.

Earnings are projected to grow 9-11% for each of the next three years.  The dividend yield is 2.11%; and the PE is 19, in a normal range of 12 to 21.

Smucker stock rose steadily since last August, peaked in May, and is now establishing a new trading range between 98 and 105.  Shares appeared fully valued at this time.  (06/06/13)

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Ciena Corp. Reports Record Revenues

(CIEN, $19.15)

Network specialist Ciena Corporation reported record quarterly revenue of $508 million, and higher-than-expected operating margins and earnings per share, thrilling Wall Street today.  Strong spending from customers AT&T and Verizon sparked the revenue surge, but Ciena’s competitors did not attend the revenue party.

Ciena Corp. has not earned a profit since 2008, but is now on track to begin earning record earnings per share in 2014 and beyond.  The PE is 44, and the company has a very high long-term debt ratio.  Expect Wall Street to adjust estimates upward in line with signs of a recovery in the optical-communications equipment market.

The stock broke out of a trading range today.  A run-up could take the stock as high as medium-term resistance at $28.  Experienced aggressive growth investors could make money near-term trading Ciena within its trading range.  (06/06/13)

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Alcoa Credit Rating Downgrade to Junk Status Jeopardizes its Place in DJIA

(AA, $8.22, down 16 cents midday)

Aluminum company Alcoa Inc.’s recent credit downgrade to junk bond status makes it vulnerable for removal from the Dow Jones Industrial Average.  “A financial or technology company may be favored to replace Alcoa because the industries are under-represented in the Dow,” says Richard Moroney, editor of Dow Theory Forecasts newsletter.  Dow stocks are chosen by editors at the Wall Street Journal.

Earnings per share are expected to rebound 88% this year, then climb 56% next year.  The PE is 18, the dividend yield is 1.45%, and the long-term debt level is a manageable 33%.

The stock price never recovered from the 2008 Financial Meltdown, and is currently in a neutral trading pattern.  While experienced investors could buy low and be rewarded due to earnings growth, the low credit rating hampers the stock’s outlook.  Look instead for stocks with currently bullish charts.  (06/05/13)

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IBM to Buy SoftLayer for $2 Billion

(IBM, $203.73, down $2.46 midday)

International Business Machines Corp. plans to buy public cloud specialist SoftLayer Technologies Inc., and combine its capabilities with IBM’s private cloud operations, in order to more effectively compete  with public cloud leader Amazon.com.  IBM can easily pay the $2 billion pricetag without making much of a dent in its cash-on-hand.

Earnings are on a long-term growth trend at IBM, and are expected to grow another 9-10% for each of the next three years.  The dividend yield is 1.85%, and the PE is 12.3.

The stock has been trading between $181 and $215 for over a year.  It experienced a big shakeout in April, and appears ready to climb again in the near-term.  While the earnings growth rate is not strong enough to earn a strong buy recommendation from Goodfellow LLC, we nevertheless believe that the stock will go up and the growth outlook is rosy at IBM. (06/05/13)

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Apple Loses Court Ruling vs. Samsung

(AAPL $444.98, down $4.33 midday)

“The International Trade Commission ruled on Tuesday afternoon that certain models of Apple’s iPads and iPhones violate patents held by Samsung,” reports Business Week.  Apple Inc. could now face import restrictions on older iPhones and iPads.  New product announcements are expected next week at Apple’s Worldwide Developers Conference.

Earnings are projected to fall 10% this year.  The PE is 11.3 and the dividend yield is 2.7%.

Apple’s share price is beginning to stabilize, after falling 300 points since September.  The chart is still neutral, with price resistance at $485.  We see no compelling reason to buy Apple shares until a pattern of earnings growth resumes.  (06/05/13)

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FedEx Increases Dividend, Retires Aircraft & Engines

(FDX, $98.38)

FedEx Corp. announced it would accelerate retirement of 86 aircraft and 308 engines, resulting in impairment charges in 2013 & 2014.  The company also increased its dividend, although the yield is nominal at less than 1%.

Earnings are expected to fall 8% this year. Despite the unexpected 2014 impairment charges, earnings are expected to rise 21% next year.  The PE is 16. Morgan Stanley calls FedEx shares “a cheap option on a cyclical rebound”  and maintains an Overweight rating on the stock.

FedEx stock broke out of a three-year trading range in January, rose to $109, and is now trading sideways between $92 and $109, with support at $96.  (06/04/13)

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Zynga Continues Restructuring to Shore Up Finances

(ZNGA, $3.05)

Online gamemaker Zynga Inc. announced that it will cut 18% of its workforce, saving about $80 million annually, and close offices in New York, L.A. and Dallas, in the wake of underperformance of several of its games.  Its Farmville game continues to perform well.   Zynga’s tally of 253 million monthly active users was down 13% in the first quarter.

While expense cuts are helpful, Zynga still needs to provide desirable products in order to compete in mobile gaming, and to grow revenues.  The company is not expected to earn a profit until at least 2015.

The stock price crashed shortly after its ipo in December 2011, and is currently in a sideways trading pattern.  (06/04/13)

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Reps. & Dems. See Eye-to-Eye on Government Mortgage Overreach 

(Federal National Mortgage Association, FNMAS, $5.99)

(Federal Home Loan Mortgage Corporation, FMCC, $2.18)

“A bipartisan group of U.S. senators is putting the final touches on a bill that would liquidate Fannie Mae and Freddie Mac and replace them with a government reinsurer of mortgage securities behind private capital,“ reports Bloomberg.  This move would limit the U.S. Government’s role in mortgage financing to one of assuming catastrophic risk.  Under the proposal, Fannie Mae and Freddie Mac would be liquidated within five years.

After three years of trading below $1.00, Freddie Mac’s share price shot up to $5.00 in May.  Fannie Mae shares moved in sync with Freddie Mac’s.  Lucky shareholders should take their chips off the table.  (06/04/13)

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Merck Fighting Melanoma with New Drug

(MRK, $48.45)

Merck & Co. Inc.’s experimental treatment for advanced melanoma  helped shrink tumors in 38 percent of patients, while 10% of patients saw their cancers disappear.  The FDA called the Merck drug “a breakthrough therapy.”  The late-stage clinical trial will begin in the third quarter.  Merck will also begin a study this year to use the drug to fight non-small cell lung cancer.

Earnings per share are expected to fall 8% this year, with revenues down 3%.  The dividend yield is 3.51% and the PE is 14.

Merck shares are slowly climbing toward their 2007 high of $61.  The stock broke out of a medium-term trading range last June, stabilized, and appears ready to break out on the upside again.  While not overvalued, there’s no compelling reason to buy shares in Merck & Company.  (06/03/13)

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New Inhaler Could Make Insulin Injections Obsolete

(MNKD, $7.63) 

Biopharmaceutical maker MannKind Corporation has developed a dry-powder insulin inhaler device, called Afrezza, for maintaining blood glucose levels in diabetes patient.  The new treatment, which completed late-stage testing, has been found to be equally effective in treating diabetes as daily needle injections.

MannKind has no recent history of earning a profit, and is expected to continue losing money for at least the next three years.

The stock price has had a big run-up from all-time lows a year ago.  There’s strong price resistance at $10.  Shareholders should use stop-loss orders to protect profits, and sell near $10.  (06/03/13)

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New Treatment for Lung Cancer Extends Lives 

(SNTA, $4.87)

Synta Pharmaceuticals Corp.’s experimental lung cancer drug, combined with chemotherapy, helped boost survival in 32% of patients with an advanced form of the disease, vs. patients who only received chemotherapy.  Lung cancer is the leading cause of cancer death in men and women.  A bigger trial is now under way which could lead to FDA approval in about two years.

Synta has no history of earning a profit, and is expected to continue losing money for at least the next three years.

The stock price fell dramatically through support levels today.  We see no compelling reason for investors to own shares in Synta at this time.  (06/03/13)

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