Looming over the stock market, the economy, and the upcoming election is
the specter of the so-called "fiscal cliff" - a collection of tax
increases and spending cuts that will go into effect on Jan. 1, 2013 if
Congress is not able to pass some sort of compromise. As economists and
analysts are forecasting an impact to GDP from 2% to 5% in 2013, it's
clearly a significant event for investors to consider. What then is the
bull/bear scenario as the fiscal cliff approaches?
Certain stocks just stubbornly retain value through good times and bad
times - even if that means occasional periods where results aren't so
good and the valuation looks too high. That's great if you're a
long-term holder who already owns shares, but it can be frustrating if
you're on the outside waiting for a good time to buy shares. Conditions
have yet to really improve for Plum Creek Timber (NYSE:PCL), but valuation still doesn't offer much of a bargain for new investors.
When a company is described as "reliable," it's typically meant as a compliment. In the case of Johnson Controls (NYSE:JCI),
however, reliability still means that you can usually expect this
company to underwhelm. Although this remains a company that could be
worth so much more with better financial results (and better
management?), I find it difficult to argue for taking a chance on
Johnson Controls absent a real path to better results.
If you believe that corporate managers should only be judged by the variables they can control, Armstrong Worldwide (NYSE:AWI)
has done quite well. While the declines in the residential and
commercial building and remodeling markets have hamstrung sales growth,
the company's expense structure has been slimmed down and the company
maintains strong share in many of its markets. The question now,
however, is whether or not the market has already factored in a
significant recovery ahead of real improvements in building and
For many Star Wars fans, the news that came out Tuesday evening read
more like something from The Onion or a Halloween prank. The American
media megalith Disney (NYSE:DIS) announced that, not only did it reach an agreement to acquire
Lucasfilm from George Lucas for about $4.1 billion, but that a new Star
Wars movie would be in theaters by 2015, with many more following
thereafter. While this deal looks a little riskier than those for Pixar
and Marvel, Disney has a habit of monetizing media franchises more
successfully than analysts usually predict.
Clean Harbors (NYSE:CLH)
is an interesting company. Built around hazardous waste collection and
disposal, the company remains a leader when it comes to these services,
but perhaps not as many investors are aware of how it has also built a
large oil and gas services business (largely through acquisitions). At the end of October, however, the company took a big step back to its roots in announcing the acquisition of Safety-Kleen.
It seems like the analysis of ABB's (NYSE:ABB)
third quarter has a lot to do with an analyst or investor's
preconceived notions going into it. ABB fans and bulls found signs of
increasing stability and deficits that were neither large nor likely to
repeat. More skeptical analysts saw another miss, weakness in orders,
and yet another less-than-perfect quarter. I am long these shares, and
while I didn't see anything in the third quarter results that scared me,
I can understand if other investors would want to wait before adding
ABB to their portfolio.
The ideal for every business (and investor) is to seamlessly transition
from one growth opportunity to another, harvesting cash flow from older
businesses and reinvesting it into new opportunities that can continue
to expand the business. Not many companies can do this completely on
their own, however, and must rely upon acquisitions to improve their
growth prospects. That would appear to be the case with Riverbed Technology (Nasdaq:RVBD),
as it has agreed to spend approximately $1 billion in cash and stock to
expand into the fast-growing application performance management market.
There are plenty of articles out there declaring the doom of trucking,
as railroads and intermodal shipping take away the industry's lunch
money (I should know, as I've written some of them). However it's
important to remember at least two points. First, not all trucking is
the same. Second, not all trucking companies are the same. Old Dominion (Nasdaq:ODFL)
continues to demonstrate its credentials for "best trucking company in
the biz," but investors could get another chance with this stock if
economic uncertainties undermine demand in the fourth quarter.
Having a favorite semiconductor stock today is sort of an odd concept,
as the entire sector has had a tough go of it this year and analysts are
increasingly worried about prospects for a 2013 recovery. Nevertheless,
Maxim (Nasdaq:MXIM) continues to pick up share with its integrated solutions, and the company offers an attractive dividend yield.
While valuation and a high consumer concentration are causes for
concern, this may yet turn out to be a very interesting stock in a
Data storage had been one of the strongest and most predictable segments of tech, but with EMC's (NYSE:EMC)
earnings in hand, it's pretty clear that even this market has stalled
in the face of more cautious IT spending. On a positive note, EMC
continues to gain share in the market and refresh its offerings with new
releases. I believe EMC remains one of the best-positioned tech
companies today and a good stock to accumulate.
Sometimes being tiny helps. In a quarter where much larger storage players such as IBM (NYSE:IBM) and EMC (NYSE:EMC) struggled to grow, Fusion-io (NYSE:FIO)
kept the growth momentum going. While being small and having a limited
customer base is usually cited as a bad thing, it probably worked in
Fusion-io's favor, as those customers continue to see demanding storage
needs. Although there's a risk that this more expensive approach to
storage will smack into an even tougher macro environment for 2013, the
growth potential here remains considerable.
Sometimes the stocks that you don't buy shape your portfolio returns as
much as the ones you do buy. That feels true for me right now, as
holding off on buying F5 Networks (Nasdaq:FFIV)
seems to have spared me a pretty negative reaction to these fiscal
fourth quarter results. Although I still believe in the growth story at
F5, it's hard to deny that there are more risks and challenges now than
over the past year or two.
Industrial conglomerate 3M (NYSE:MMM)
may be well-balanced in terms of market and regional exposure, and the
company scores well on comparative margins and returns on capital, but
it is not immune to the sluggishness that we're seeing across the board
today amongst international industrial conglomerates. Although the
company's organic growth and margins actually compare pretty well on
balance, management's lower guidance and caution on 2013 may result in
investors hitting the pause button on what has been one of the few big
industrials to outperform the S&P this year.
For investors bearish on VMware (NYSE:VMW), this was an interesting quarter. Plenty of other software companies (such as IBM (NYSE:IBM), Microsoft (Nasdaq:MSFT) and Oracle (Nasdaq:ORCL))
have talked about weak macro conditions, but VMware's stock was weak
going into this report and the bookings number did look pretty soft.
Although I happen to be more positive about the long-term fundamentals
for VMware, the valuation still leaves plenty of risk for this once (and
future?) growth darling.
Against the host of weak sisters that make up most of the semiconductor space today, Broadcom's (Nasdaq:BRCM)
product cycle-driven strength really pops out. And yet, the stock
really hasn't done all that well over the past year. While I do worry
that going long on Broadcom is a crowded trade, it's tough to argue with
one of the strongest chip stories available today.
If Illinois Tool Works (NYSE:ITW)
gets too much criticism for not really delivering dynamic growth in the
good times, it's also true that the company doesn't get enough credit
for avoiding the worst of the slowdowns. While growth is very definitely
slowing at Illinois Tool Works, as it is for almost all industrial
companies, the company's margin leverage
is impressive nonetheless. As is typically the case, Illinois Tool
Works is not especially cheap but it still scores well as a good option
for patient investors.
gets plenty of well-deserved credit for continually remaking itself
over the years, and maintaining a focus on markets where it can reap
meaningful economic returns. Just because DuPont is well run, however,
doesn't immunize it from the markets it serves, and the third quarter
saw a big shortfall in volume, revenue and earnings. While I think
DuPont remains a high-quality specialty chemicals company with a strong
dividend, the value case is a little more challenging to make.
Done right, asset-light transportation/logistics services can be quite lucrative
even if the reported free cash flow margins are thin. As one of the
larger players in intermodal (and the largest asset-light intermodal
company), Hub Group (Nasdaq:HUBG) is taking advantage of the same intermodal growth trends that have been helping rival J.B. Hunt (Nasdaq:JBHT) and boosting the performances of Class 1 railroads such as Union Pacific (NYSE:UNP) and Norfolk Southern (NYSE:NSC).
Although Hub Group is vulnerable to a further macroeconomic slowdown
and a margin squeeze between rail carriers and customers, there could be
worthwhile value in these shares.
The slowdown that has hit industrial companies ranging from Cummins (NYSE:CMI) to Dover (NYSE:DOV) to Honeywell (NYSE:HON) and Caterpillar (NYSE:CAT)
has been long in coming and pretty well telegraphed. The economic
malaise in Europe and slowdown in China has pressured demand for
commodities and slowed the pace of construction - basically a one-two
punch to Caterpillar's core businesses. Although the Street responded to
CAT's third quarter earnings pretty calmly, I don't think today's
valuation is close to washout levels and there could be further downside
if the fiscal cliff bites into the U.S. economy and further slows the
As investors have come back around to the idea that maybe coal isn't forever doomed, shares of leading coal company Peabody Energy (NYSE:BTU)
have rebounded over the past quarter. Better still, Peabody delivered
the sort of quarter that ought to remind investors that it is indeed a
high-quality operator in the sector. Although Peabody's recent stock
market action has taken away a fair bit of the easy money, long-term
investors could still have reason to own this name, albeit with some
Watching Texas Instruments (Nasdaq:TXN)
over the past two years reminds me of that candy commercial where a kid
asks how many licks it takes to get to the center of the candy.
Revisions continue to head lower and investors have to be asking
themselves just how much worse things can get before the turnaround
finally happens. While I do believe TI has solid margin leverage to a
chip recovery, the stock isn't cheap enough to entice me to brave the risks that the recovery takes even longer to achieve.
It wasn't as though there was much doubt about whether industrial
markets had slowed down; investors only had to look at the results from
companies such as Danaher (NYSE:DHR) or Dover (NYSE:DOV). Nevertheless, the market didn't really like what General Electric (NYSE:GE) had to say, even though organic growth
and orders weren't bad relative to peers. GE isn't the cheapest stock
out there, but expectations are low and management seems to have cogent
ideas about where the company can build value for the long-term.
Given how volatile the energy sector can be, as investors have seen lately with major service providers such as Baker Hughes (NYSE:BHI) and Halliburton (NYSE:HAL), as well as smaller names such as Basic Energy (NYSE:BAS), it's no surprise that Schlumberger (NYSE:SLB)
gets the premium that it does. Although it is not immune to the ups and
downs of the cycle, this is a company that executes on a consistent
basis. While Schlumberger's leading position in energy services offers
good leverage, it is worth asking if the stock's premium mitigates the
Kansas City Southern (NYSE:KSU) is an odd duck in the railroad space. Although a Class 1 railroad, it's quite a bit smaller than the likes of Union Pacific (NYSE:UNP) or CSX (NYSE:CSX).
Likewise, it often seems to be overlooked - more than a couple of
analysts who cover the major rails don't cover Kansas City Southern. On
the other hand, this company has uncommonly strong growth prospects, but
a valuation to match.
Energy services giant Baker Hughes (NYSE:BHI)
provides a good example of something I've often said about
commodity-related companies - calling/playing a bottom in the cycle is
always risky, because these companies have a way of finding new peaks
and carving out new troughs that are higher/lower than you think they
could be. While Baker Hughes does seem undervalued today, and should be
well-positioned to benefit from a recovery in North America and ongoing
growth outside, it takes a little faith and even more appetite for risk
to buy today on that thesis. By the same token, if you wait for
definitive proof of the turn, you'll leave a meaningful amount of
capital gains on the table.
For a company that rarely misses earning expectations and is typically
viewed as a credible commentator on near-term economic conditions, Danaher's (NYSE:DHR)
third quarter results can't leave investors feeling too great. Although
the company's long-term strategy of growth-through-acquisition and
fierce cost efficiency is very likely to continue, the near-term outlook
has definitely worsened. Given that this stock has often sported a
premium multiple, performance could continue to lag until investors feel
more optimistic about the macro outlook.
As I mentioned the other day in discussing CSX's (NYSE:CSX) earnings, good companies show their qualities when times get a little tougher. With that in mind, there's little to suggest that Union Pacific (NYSE:UNP)
ought to be dethroned as the best railroad at the moment. While the
company's pricing and operating expense control is laudable, it's worth
asking how much of a premium investors should pay for a best-in-class
operator facing some near-term macroeconomic challenges.
Although the dining industry is not exactly a high-growth industry in
the traditional sense, investors have seen repeatedly that the right
concept, bought at the right time, can deliver substantial capital
gains. Chains such as Red Robin (Nasdaq:RRGB), Cheesecake Factory (Nasdaq:CAKE), Buffalo Wild Wings (Nasdaq:BWLD) and Panera (Nasdaq:PNRA) (and before Panera, its predecessor Au Bon Pain) have all had their runs, but maybe none quite like Chipotle Mexican Grill (NYSE:CMG).
Unfortunately for investors, many seemed to fall into the common trap
that valuations didn't matter and Chipotle would always outgrow such
tiresome concerns as valuation. With same store sales slowing
significantly this year, the stock has tumbled on worries about that
growth-value trade-off. While the valuation at Chipotle is as reasonable
as it has been in some time, it's still not exactly cheap unless
investors believe this company can essentially break the rules when it
comes to future growth.
In some respects, Microsoft (Nasdaq:MSFT)
is just like any and every other lower-growth tech story - nobody cares
about the value of the cash flow, because the years of market-defining
growth are long past. Perhaps it's even worse in the case of Microsoft,
as moves towards mobile computing devices, software as service/cloud,
and so on threaten the very core of that cash flow. Therefore, while the
stock continues to look cheap on the basis of even vestigial growth,
new products like Win8 and the Surface tablet really have to work if any
of that potential value is going to become real.
I've tried to make the case before that BB&T (NYSE:BBT)
was an underappreciated regional bank that really wasn't getting its
due from the sell-side community. Now that management missed numbers
with higher expenses and revised guidance lower for the next quarter,
it's harder to make that argument. Although I fully expect BB&T to
spend at least a quarter or two in the penalty box now, I believe the
company's loan growth, credit quality, and expansion potential all will
pay off in time. As such, while third quarter results frustrate me as a
shareholder, I'm not looking to sell at these prices.
It was never part of the plan for Boston Scientific (BSX)
to have a sudden return to growth in the third quarter (or 2012, for
that matter), so it's hard for me to be disappointed by the numbers that
the company continues to post. The driving question for investors
continues to be whether the company's seemingly endless restructuring
moves and acquisitions will give it a better platform from which to
grow, and/or whether the transition to new CEO Mike Mahoney will mark a
turning point. Though I'm still skeptical, I have to point out that the
rewards for success could be meaningful from today's level.
There's a gray area between not overreacting to one or two quarters of
underwhelming performance and willingly ignoring emerging bad news about
a company. That seems particularly relevant now with St. Jude Medical (STJ),
as the company has once again left investors wanting more after
earnings. While I am inclined to attribute the sluggish financial
performance to a broad weaker-than-expected recovery in med-tech, the
greater FDA scrutiny from the company's lead issues is a more troubling
development for the next year or so.
I've long said that U.S. Bancorp (NYSE:USB) is one of the (if not the)
best banks in the United States, and so far nothing in 2012 has led me
to rethink that view. Not only has management served investors well with
a balanced approach to lending and fee income generation, but the
company's capital and credit positions are in excellent shape. At this
point, the only real problem with U.S. Bancorp is that other investors
are well aware of the bank's quality and the shares don't seem to offer
much capital undervaluation at present.
As seems to be the case with Coca-Cola (NYSE:KO), PepsiCo (NYSE:PEP)
is not presently delivering the sort of results that its premium
valuation would seem to demand. Certainly some of this can be tied to
investor confidence - Coca-Cola and PepsiCo may wobble from time to
time, but they eventually get their affairs in order and get back to the
business of wringing above-average profits from strong global brands.
That said, while I do believe PepsiCo has some good things going for it,
I see no reason to pay up for the stock today.
In contrast to Applied Materials (Nasdaq:AMAT), which has repeatedly made moves and comments that have left investors scratching their heads, ASML (Nasdaq:ASML)
continues to operate and report along highly predictable lines.
Although there's evidence that industry conditions are even weaker than
previously supposed, ASML didn't really surprise with its third quarter
earnings, nor its announcement that it's acquiring Cymer (Nasdaq:CYMI). What is frustratingly less obvious, is what constitutes a fair price to pay for ASML today.
It's no understatement to say that the earnings warning from Norfolk Southern (NYSE:NSC) spooked investors in the rail sector and focused a great deal more attention on fellow East Coast operator CSX (NYSE:CSX).
And yet, a company that still carries historical baggage from
below-peer operating performance managed to deliver a satisfactory
quarter. Although this rail company is still vulnerable to weakness in
coal volume, it may not be a bad pick for investors who want to make a
leveraged play on a better economy.
Although investors had been lowering their expectations for tech sector growth/performance this quarter, IBM (NYSE:IBM)
still managed to spook the Street with soft revenue in both hardware
and software. The long-term picture for IBM hasn't changed all that
much, though it is likely that tech investors are going to be chewing
their nails for at least another quarter. In the meantime, while IBM
remains a well-run and comprehensive play on technology, the stock still
isn't a great bargain.
It's probably true that Wall Street predictably and consistently
undervalues the service/maintenance revenue streams for tech companies -
I thought it was true of Quest, which was recently acquired by Dell (Nasdaq:DELL), and I think it's true of both CA (Nasdaq:CA) and Check Point (Nasdaq:CHKP) today.
problem for Check Point, though, is that the enterprise security market
is changing and it's not clear that Check Point has invested enough
R&D dollars to stay competitive. While it will be some time before
rivals such as Palo Alto (NYSE:PANW), Fortinet (Nasdaq:FTNT), Sourcefire (Nasdaq:FIRE)
or Dell's SonicWall can take their lunch money, better product growth
is going to be an essential part of maintaining the value of this
It took a while, but healthcare giant Johnson & Johnson (NYSE:JNJ)
is once again delivering on its potential as a triple-threat in drugs,
devices, and OTC consumer and health products. Strong growth in the drug
and devices business is very much welcome, but now the question becomes
whether management can lead a similar turnaround in OTC. Although
J&J looks to be on the cusp of being a good buy, ongoing
outperformance does seem predicated on a more well-rounded growth
profile in the coming years.
is one of the many growth tech stocks that I've damned with the praise
of liking the company and the growth story, but finding the valuation to
be too demanding and too vulnerable to disappointment. In the case of
Fortinet, it looks like that particular bird came home to roost with
third quarter results that weren't really that bad, but not nearly
strong enough to keep a hope trade going.
It's well worth remembering that good companies have a way of surpassing
expectations and delivering strong results. I should have remembered
that lesson last quarter when it came to Packaging Corp of America (NYSE:PKG).
I have long liked Packaging Corp (aka "PCA") as one of the best-run
paper/packaging companies in the country, I didn't see much slack left
in the valuation. Yet, not only has the company continued to see good
expense leverage, but it has continued to gain share in the market,
while enjoying strong industry-wide pricing. That propelled the stock up
more than 20% over the past three months.
It's just one of the realities of investment writing that nobody's ever
going to thank you for writing anything negative about well-loved stocks
like Coca-Cola (NYSE:KO), Nike (NYSE:NKE) and PepsiCo (NYSE:PEP). But as these stocks have shown over the past year, valuation always
matters; all three remain high-quality companies with incredible
brands, but all were expensive a year ago and they have underperformed
in the market. Although I see nothing fundamentally disturbing about
Coca-Cola from a long-term perspective, I wouldn't be in a rush to pay
the going rate for its shares.
It's probably too much to hope that money center banks like Bank Of America (NYSE:BAC) or Citigroup (NYSE:C)
will ever report completely clean quarters (as there are just too many
moving parts), but it seems like it's always something with Citi. While
third quarter results looked OK on the surface, there still isn't much
sustainable momentum behind the numbers and it's hard to feel great
about the company with now-former CEO Vikram Pandit stepping down.
quarter ago, I did think that Citi was a good pick for aggressive
investors, and the stock has climbed nearly 40% since then. Given where
valuation is now relative to others such as JPMorgan (NYSE:JPM), Wells Fargo (NYSE:WFC) and U.S. Bancorp (NYSE:USB),
the potential disruptions from the leadership transition and the
underlying momentum, I'd be less inclined to buy this stock over some of
those other high-quality banks.
By and large, it looks like investors continue to prefer the regional banks to the money center banks such as JPMorgan (NYSE:JPM), Citi (NYSE:C) and Bank Of America (NYSE:BAC).
To a certain extent, this makes sense - the regional banks are simpler
to understand, less volatile (due in part to less reliance on trading
and investment banking), and less of a soft target for litigation. That
said, while JPMorgan's trading losses earlier this year highlight the
fact that no bank with a prop desk is ever completely safe, today's
valuation seems to undervalue not only the company's balance sheet and
array of businesses, but the quality of its management and growth
Sprint Nextel (NYSE:S)
has always seemed to be uncommonly controversial for a carrier. Not
only has the company had its ups and downs with mergers and
acquisitions, but the Street has never seemed entirely comfortable with
the its plans vis-a-vis Clearwire (Nasdaq:CLWR).
Even now, after the company has reached an agreement to sell a
controlling stake to Japan's SoftBank, it doesn't look like there's any
imminent end to the controversy and uncertainty.
IT services is a lucrative market, as investors in IBM (NYSE:IBM), Accenture (NYSE:ACN) and Cognizant Technology Solutions (Nasdaq:CTSH) know quite well. As one of the largest players, India's Infosys (Nasdaq:INFY)
has enjoyed ample growth over the years, but the question is whether
the company is still well-positioned to exploit ongoing growth in
Although the valuation does not look especially demanding today, it's
worth asking whether management can stabilize its margins and hold (or
gain) share in a still-growing market.
It's not uncommon for companies to transition to defensive plays as
established market share, economic moats and slowing end-market growth
discourages its new entrants. What's more, there's nothing wrong with
defensive companies - they can enjoy solid margins and cash flows, and
they often pay healthy (and reliable) dividends.
It's not so
common, however, to see defensive companies aggressively seek to become
more offensive. This transition not only creates a large amount of
execution risk, it also demands capital that more conservative investors
usually prefer to see directed towards dividends and buybacks.
Nevertheless, Ecolab (NYSE:ECL)
continues to push on with an acquisition program that has meaningfully
altered its business mix and given it greater long-term growth
Make no mistake - Fastenal (Nasdaq:FAST)
is a great company, and a good play on the consolidation of the
industrial supply market. That said, Fastenal's stock carries a
valuation more commonly seen in hot technology stocks than in the
industrial sector. Consequently, while I do believe Fastenal has a
runway to becoming one of the largest players in a market worth over
$150 billion, the stock already seems to be assuming a great future.
Wells Fargo (NYSE:WFC), along with other "super-regionals," such as U.S. Bancorp (NYSE:USB), PNC (NYSE:PNC) and BB&T (NYSE:BBT),
occupies appealing real estate. The firms are big enough to secure
cheap credit and massive operating scale, but they don't engage in the
same level of volatility-inducing investment banking or proprietary trading as the big money center banks, nor do they carry quite the same regulatory burdens.
of that said, performance still drives ultimate valuation, and Wells
Fargo took a little stumble in the third quarter. One quarter is not
enough data to make sweeping judgments about market share or
management's strategy, but it may be enough to threaten what has been a
Lexicon Pharmaceuticals (LXRX)
still isn't what I'd call a household name in biotech, even though the
company has over $1 billion in market capitalization and at least two
solid drug product candidates. With Friday's news of a successful Phase
II study in carcinoid syndrome and the launch of a Phase III study,
Lexicon investors have good reason for a little cheer going into the
has really never enjoyed smooth sailing. Not only has the company
sought to break into the radiation oncology space (at the expense of
strong incumbents Varian (VAR) and Elekta (EKTAY.PK), but it has done so
at a time when hospital capital budgets are already under a great deal
of strain. More recently, the company executed a controversial
acquisition of TomoTherapy, and while the company has made good progress
on margin improvements, order growth has been elusive.
Once again I find myself in a familiar place with J.B. Hunt (Nasdaq:JBHT). I like this growing intermodal services provider, and I do believe it's one of the most compelling organic growth
stories in the transportation sector. On the other hand, I don't like
how growth-starved investors have bid up the shares of this company to a
level where I believe outperformance could prove difficult.
When investors consider why companies such as Albemarle (NYSE:ALB), PPG (NYSE:PPG) and Huntsman (NYSE:HUN) go about the process of remaking themselves, a quick look at Ashland (NYSE:ASH)
may offer some explanation. Once largely a refining and marketing
company, Ashland has remade itself into a diversified specialty
chemicals company. Now the question is whether this transformation can
lead a company with perpetually poor free cash flow conversion and returns on capital to better results over the long term.
Well-known investor Carl Icahn has been agitating for various changes at specialty commercial and defense truck manufacturer Oshkosh (NYSE:OSK)
for some time now. On October 10, 2012 Mr. Icahn ratcheted things up a
notch - making an offer to the company's board to take the company
private for $32.50 per share in cash. Should investors push the board to
cash out, or should they hope that the board rebuffs Icahn and
continues on as an independent publicly-traded company?
I wish I could like AptarGroup's (NYSE:ATR)
stock as much as I like the business. After all, there's something to
be said for a company that has leveraged its expertise in valves, pumps
and closures to become a leading player in products like fine-mist spray
pumps, lotion pumps, nasal spray pumps and a variety of innovative food
and beverage packages. Unfortunately, it looks like the Street is
already well acquainted with the good points of this company, and the
stock sports a fairly demanding valuation.
Sometimes it seems that Wall Street just wants to like a company/stock,
and even decelerating growth doesn't end the love affair. Yum! Brands (NYSE:YUM)
is indeed a well-run company, but whereas investors have sold off many
stocks on worries about slowing emerging market economies, the multiples
here have stayed robust. Shares of this global quick service restaurant
(QSR) remain a quality hold, but demanding growth assumptions make the
"buy now" case a bit more difficult.
As a small, highly-leveraged company that must compete with brand-name goliaths such as Clorox (NYSE:CLX), Procter & Gamble (NYSE:PG) and Unilever (NYSE:UL) on a daily basis, it's not altogether surprising that Helen Of Troy (Nasdaq:HELE)
shares can be very volatile. Today's poor growth numbers are certainly a
concern, as are the company's long-term market position and cash flow
leverage, but aggressive investors may see opportunity emerging in a
company that has often been knocked down, only to rise once again.
With another month in the books, U.S. railroad traffic still seems to
fit and support a "cautiously optimistic" sort of outlook. Traffic
growth is absolutely down relative to the post-recession recovery, but
still continues to push in a positive direction. That said, data
pointing to a slowing U.S. economy have started worrying investors in
these stocks - while the Dow Jones U.S. Railroads Index is up more than
20% over the past year, September was a rough month.
is looking like a pretty good example of a company that is doing a lot
of the right things internally, but can't make much objective progress
in the face of significant industry and economic headwinds. Alcoa seems
better positioned than Noranda (NYSE:NOR), Century Aluminum (Nasdaq:CENX) or Rio Tinto (NYSE:RIO),
and the stock is trading below historical forward multiples, but it
seems hard to imagine the stock really moving until aluminum prices
Stanley Black & Decker (NYSE:SWK)
wants to be involved with businesses with global reach, as well as find
a happy medium between consumer, construction and industrial market
exposures. Spectrum Brands (NYSE:SPB) wants quality brands that can offset competition from Procter & Gamble (NYSE:PG) and Energizer (NYSE:ENR),
while also producing good cash flow. These two wants came together on
Tuesday morning with the announcement that Spectrum Brands is buying the
Hardware and Home Improvement (HHI) business of Stanley Black &
Decker for $1.4 billion in cash.
It's unfortunate, but the reality of politics in America these days is
that it's sometimes hard to tell the difference between political
posturing for the benefit of the constituents who watch TV and
legitimate issues of national importance. Take the recent report from
the U.S. House Intelligence Committee that recommends U.S. companies and
government agencies avoid doing business with Chinese firms Huawei and
ZTE - is this a legitimate concern for U.S. security, or just an
unnecessary pre-election kerfuffle?
Perhaps even more critical to
investors, however, is the question of whether Congress intends to put
any real force behind this recommendation, and whether there will be
consequences for American hardware vendors such as Cisco (Nasdaq:CSCO) and Juniper (Nasdaq:JNPR).
It's probably lucky for Hewlett-Packard (NYSE:HPQ) that Apple (Nasdaq:AAPL) and Facebook (Nasdaq:FB)
capture so much market attention these days, as this tech company's
decline from the spring of 2010 has been nothing short of brutal. Now
with a sobering analyst day in the rear-view mirror and guidance for a multi-year turnaround in place, do investors still have reason to hang on in hopes of a turnaround at HP?
Many chemical companies, including Huntsman (NYSE:HUN),
are trying hard to divest commodity businesses in favor of
higher-margin and more consistent specialty or differentiated product
lines. With an upcoming transaction with Georgia Gulf (NYSE:GGC) that will see it shed its commodity chlor-alkali business, PPG (NYSE:PPG)
is taking another strong step in that direction. Although PPG's strong
share in specialty coatings and growth potential in areas such as
optical and specialty materials are quite attractive, the stock's strong
performance this year seems to discount a lot of this already.
In some respects, cable TV/Internet businesses ought to work like
utilities. It takes a lot of capital to build the infrastructure, but
once it's in place customers send in monthly checks like clockwork. It's
never quite worked out that way, however, as seemingly never-ending
capital demands have prevented many of these companies from turning into
steady dividend-generating machines.
Virgin Media (Nasdaq:VMED)
is an interesting case study. On one hand, the company's high-quality
network is valuable and the company has consistently delivered on ARPU. On the other hand, the company faces competition from conventional competitors such as British Sky (Nasdaq:BSYBY) and BT Group (NYSE:BT), as well as content rivals such as Netflix (Nasdaq:NFLX), Amazon (Nasdaq:AMZN), Google (Nasdaq:GOOG) and Apple (Nasdaq:AAPL). Worse still, the company's huge debt load crushes a discounted cash flow model - leading to the question of how much debt should matter to investors.
To a certain extent, financial media these days is "all Apple (Nasdaq:AAPL), all the time." When you consider the significance and impact of Apple's performance and health
on the entire market ecosystem, that level of attention doesn't seem
quite so outlandish. For better or worse, the health of Apple shapes the
fortunes of a large number of stocks and to some extent, the markets
When I last wrote on Ingersoll-Rand (IR)
in February, I thought that this industrial conglomerate was the sort
of perennial underachiever that could do well if and when management
started delivering better results and the market really bought into the
idea of reliable improvement. Although it's still early, it looks like
Nelson Peltz's involvement with the company has improved sentiment, and
it does look like management has credible plans for healing what has
been a long record of underperformance.
Just when it seemed like small-cap orthopedic company NuVasive (NUVA)
had significantly quelled worries about competition (and/or market
share), overall market growth, and its business model, an earnings
warning for the third quarter has thrown it all back into doubt.
Although the magnitude of the company's miss doesn't seem enormous, I
already had my concerns
about the valuation on these shares and it looks like NuVasive is going
to have to sit in the penalty box for at least a little while.
Investors have gotten pretty skittish about vehicle part/component
suppliers, even if quality companies overweighted towards commercial
and/or emerging markets are getting an incremental premium. With good
cash flow and solid (albeit erratic) returns on capital, WABCO (NYSE:WBC) stands out as a quality commercial vehicle original equipment manufacturers (OEM) supplier and unfortunately the stock reflects that.
Every so often, an investor will come across a company that flummoxes them, and Ubiquiti Networks (Nasdaq:UBNT)
is one such company. I love the idea of providing attractively priced
wireless equipment to developing countries and exploiting the gap
between broadband demand and capacity. On the other hand, the company's
model is unconventional, to say the least, and recent issues with
counterfeiting may well highlight some of the serious risks of that
model. Overall, Ubiquiti ends up looking like a classic
high-risk/high-reward story - if it works, it will work very well, but
if it doesn't, there won't be many places to hide.
While the market's reaction to Monsanto's (MON)
earnings has calmed a bit as of this writing, investors were initially
quite unimpressed with the results. While missing a quarterly number
and/or lowering guidance relative to consensus is never a good thing, it
would be a mistake to assume that Monsanto's seasonally weak fourth
quarter gives a good read on near-term results. Given this company's
technical leadership and management's "under-promise, over-deliver"
inclinations, I'm in no hurry to cash out of these shares.
This has been Repsol's (OTC:REPYY) annus horribilis, as the Argentine government's decision to steal YPF
(or "nationalize"/"expropriate", if you prefer) walloped the stock and
forced Repsol's management to re-evaluate the company's core operating
priorities and capital structure. While I would never suggest that
losing a business as large as YPF is a long-term positive for the
company, this restructuring was arguably overdue and Repsol has a lot of
appealing production/reserve growth potential.
Ordinarily, a sudden change in management during a highly valued
growth/momentum story would be expected to shake up the stock. But then Seadrill (NYSE:SDRL) has never been an ordinary story and it looks like the markets aren't too troubled by news of a new CEO
and a possible corporate relocation. While I'd be inclined to agree
that Wednesday's news really doesn't change a lot for the company,
valuation is still pretty robust on this name.
Relative performance can be a tricky metric to use when assessing
whether a particular company's stock is getting its due in the market;
significant factors like debt, margins and management's competence all
make a difference. Nevertheless, the valuation on Huntsman (NYSE:HUN) puzzles me a bit, especially in relation to other chemical companies such as Albemarle (NYSE:ALB), Ashland (NSYE:ASH), Dow (NYSE:DOW) and BASF (OTC:BASFY).
Although Huntsman has not fully executed a transition to a specialty
chemicals company and there is a lot of debt here, this could be an
interesting name to watch.
As Apple (AAPL)
piled up billion after billion of dollars of excess cash in the bank,
questions swirled about how the company would use that cash. Of course,
we now know at least part of the answer — Apple re-initiated a dividend
and will begin returning some of that cash to its shareholders through
quarterly dividends and a multi-year, multi-billion dollar buyback
program. Here are some essential facts to consider with the Apple
There is more to successful dividend investing than simply spotting high
yields. Rather, the most successful dividend stock investments are
those where the company’s underlying fundamentals continue to improve
and where ongoing free cash flow growth can continue to support higher
payouts. The following, then, are seven companies that have been
uncommonly strong dividend growth stories over the past 25 years.
One of the crueler aspects of biotech is that investors can be right
about a technology or drug, but still not make much money from it. Bad
deals, bad management, and mismanaged expectations can sometimes do harm
that even blockbuster drugs can't fix. While I don't think any of that
applies to ImmunoGen (IMGN), I do wonder how much value lies in this company's Targeted Antibody Payload (TAP) technology (basically the company's own antibody drug conjugate approach).
Not many North American companies want to be in the commodity chemicals
business anymore, and more and more of that business has migrated to
countries such as China, India and Brazil. So, like many other chemical
companies, Cabot (NYSE:CBT)
has worked hard to remake itself into more of a specialty chemical
company with differentiated products. Global sluggishness isn't helping
the business at the moment, and the combination of elevated debt and
historically unimpressive margins are risk factors, but changes in how
the company does business could lead to better long-term results.
There's a big difference between commodity chemical companies and
specialty chemical companies - both can make you money, but companies
with more of a commodity orientation have to be sold more nimbly. That's
not to say, however, that investors can just buy a company like Albemarle (NYSE:ALB)
whenever they may like. While this is a very interesting and well-run
chemical company, today's valuation doesn't offer much discount despite
multiple challenges to the business.
When a company has paid dividends for the better part of a century, clearly it is doing something right. McCormick (NYSE:MKC) has a great business and management runs it well,
but investor expectations run pretty hot for this leading spice
company. While I can understand how investors may feel that overpaying
for McCormick is preferable to taking a risk on a lesser company, I'd be
cautious about paying so much relative to its growth potential.
There's a line from Tolstoy's "Anna Karenina" that says, "Happy families
are all alike; every unhappy family is unhappy in its own way." I'm
inclined to say that that's also broadly true of bubbles. Apart from
some superficial differences that may convince participants that it's
somehow different this time, bubbles seem to follow some familiar
patterns. With that in mind, Canadians may want to take a closer look at
their own housing market, lest it go through the same spasms that have
knocked the wind out of the U.S. housing market and the broader economy.
With new CEO Pascal Soriot just getting comfy in the CEO chair at AstraZeneca (AZN), he lost little time in making a mark on the company. On Monday, the large (but struggling) but British drug company announced
that it would suspend its buyback pending a "review of the company's
strategy". While it certainly makes sense that the new CEO may just as
soon keep $2 billion on hand (the company has completed $2.3 billion of
an approved $4.5 billion buyback) for the time being, there are
widespread assumptions that this is prelude to a larger deal.
Through the end of September, 2012 has by and large been another solid year
for commodities. Measuring commodity performance can be a little tricky
though, as many commodity ETFs and ETNs hold various contracts
throughout the year and roll those contracts according to their
investment mandate. What that means is that ETF/ETN performance can vary
from the underlying commodities [for more commodity ETF news and
analysis subscribe to our free newsletter].
While many regular investors do find that commodity futures offer certain advantages
as investment options, a large number look to get their exposure
through ETFs and ETNs, and it is the performance of these vehicles that
we will use as proxies for this article.
are, and please pardon the obvious pun, an invaluable option when it
comes to crafting trading and investment strategies. At the simplest
level, options offer a relatively simple and straightforward form of
leverage for investors who want more to pursue more aggressive
strategies. Options can also be very useful in hedging risk,
creating income from securities that do not otherwise pay dividends,
and executing strategies that exploit mispricings tied to volatility,
timing and other factors.
While there are a host of stocks with active (liquid) options
contracts, and likewise many liquid index options, that’s not always the
case with options on ETFs. It’s also very important to note that while
index options are European-style, ETF options are American-style
options. All of that said, here are some of the commodity-related ETFs
with the most active options [for more commodity ETF news and analysis
subscribe to our free newsletter].
Earning income from commodity investments typically requires some work and creativity on the part of investors. After all, gold bars
and barrels of oil don’t pay out any income in and of themselves. That
means that investors who want yield from their commodity investments
need to either periodically sell part of their position to replicate
income, or they need to invest in shares of commodity-related companies
that do pay dividends.
As is often the case, ETFs can offer many advantages to investors
(like enhanced diversification). When looking at high-yield ETFs,
though, investors need to exercise some caution. Like mutual funds, ETFs
will sometimes include capital gains distributions and/or returns of
capital in addition to ordinary income dividends. In the case of commodity ETFs,
investors also need to realize that the dividend payout of many foreign
companies can vary significantly from year to year and may include
special dividend payments that boost the backward-looking yield numbers
[for more commodity ETF news and analysis subscribe to our free newsletter].
Although I've owned 3M (NYSE:MMM)
for years and have great respect for the company's consistently
excellent returns, I nevertheless was not too impressed with the acquisitions
announced under former CEO Buckley's tenure. By and large, I thought
the company was too cautious and too focused on uninspiring tuck-in
deals. It looks, though, like current CEO Thulin is much more willing to
push the envelope, and the company's acquisition of Ceradyne (Nasdaq:CRDN) looks like the sort of deal that could quietly pay off very well in the years to come.
The investment community seems to have locked on to Nike's (NYSE:NKE)
"China problem," and this quarter's results aren't going to help. The
good news is that investors can still take advantage of this situation
to build a position in a stock that very rarely ever gets down to a fair
price, let alone cheap. The bad news, however, is that results could
slow in the interim and Wall Street is very much a "what have you done
for me lately?" sort of business.
Ratings agencies received a lot of criticism for their handling of debt
ratings during the waning days of the housing bubble and the resulting
crash-crunch. If Moody's (MCO)
recent upgrade of the pharmaceutical sector is any indication, it looks
like they may not have improved their timeliness all that much. In
fact, investors approaching the Big Pharma sector today aren't likely to
find many bargains and may in fact be buying into a somewhat overheated
Investors with many years of experience in biotech know there's
something to the idea that the best time to prepare for war is during
peace (and vice versa). With the biotech sector heading for its second
straight year of strong returns, it's worth asking whether investors are
getting a little too cavalier about risk and whether investors in the
sector are getting set up for a sizable correction.