Amit Chokshi submits:
Sprint (
S) recently reported
Q409 earnings that fell short of Street expectations. This sent share prices tumbling with investors trying to gauge when S’s long awaited turnaround will materialize. Given the competitive landscape S faces, a number of Street analysts have written S off and have continued to beat the drums of the Company’s demise. The stock is also reflecting significant investor apathy and skepticism regarding S. However, if one takes a closer look, a compelling bull case could be made for the Company. Rather than first cover the merits of S, it may make sense to review why the Street and investors are negative on the stock. While some of the bear case on S is clearly valid, there are also some misconceptions regarding the Company and once those are highlighted, S may become a more attractive investment.
Bear Case Highlights:
1) Sprint’s key operating metrics are worst in class: Bears are quick to point out that S significantly lags its peer group in terms of key operating metrics. As Tables I and II illustrate, this is true. The Company has lagged its peers for years, particularly the two dominant players Verizon Wireless (VZ) and AT&T Mobility (T). However, one should note that from a free cash flow perspective, S is free cash flow positive and while its free cash flow margin ("FCFM") lags VW and ATM, it exceeds, and has exceeded, pre-paid peers Leap Wireless (LEAP) and MetroPCS (PCS) for years.
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Have I mentioned Dr. Pepper Snapple Group (DPS) on this blog before? OK, once or twice. There wouldn’t be a need for this crusade if anyone else seemed to be paying attention. Honestly, it seems like Crocs (CROX), a maker of plastic shoes, gets more press.
Despite relative obscurity, DPS is a serial winner. The stock was up 11% Wednesday, thanks to a combination of earnings and the Coca-Cola (KO)/Coca-Cola Enterprises (CCE) deal.
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Kevin Kennedy submits:
While Democrats and Republicans sparred over health care reform on a national stage Thursday, one of America’s leading health care expense cutters continued to laugh all the way to the bank.
On Wednesday, pharmacy benefits manager, Espress Scripts (ESRX), reported adjusted fourth-quarter earnings of $0.97 per share – seven cents better than expected – and increased its guidance for 2010 (see transcript here). This led shares into all-time high territory. The stock rose 9% Thursday, closing at 95.23, and its daily volume of 8.3 million shares was more than four times its daily average.
The company’s earnings have flattened out in the past four quarters, but its
ESRX’s April 2009 purchase of NextRx from WellPoint (WLP) helped earnings and could be a catalyst for future profit growth. The company guided 2010 earnings expectations higher, predicting full-year earnings of $4.80-$5 compared to analyst expectations of 4.69. Analysts are expecting $6 in earnings in 2011.
The company also expects NextRx, which cost about $4.7 billion, to eventually provide more than $1 billion in annual earnings power.
St. Louis-based Express Scripts is the second largest pharmacy benefits manager behind Medco Health Solutions (MHS). Its market cap of $26 billion isn’t much more than its 24.75 billion in annual sales, a number which grew almost 13% over full-year 2008 figures. Annual earnings increased 7% to $827.6 million.
The company helps cut costs by increasing its utilization of generic drugs to almost 70% of all prescriptions. Prescription drug costs make up about 10% of all health care costs, according to the United States Centers for Medicare & Medicaid, and that is expected to rise to 12% in 2016.
The company also helps participants in the drug distribution chain increase efficiencies in several ways, including its bulk buying power. The company processed more than 530 million claims last year and sees that rising above 700 million in the coming year.
The stock has seen its PE ratio range from the teens to the 30s in the past few years. Slap a multiple of 30 on $6 of projected annual earnings in 2011, and this could easily grow into a $180-$200 stock.
Disclosure: No positions
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David Hunkar submits:
In an earlier post, we discussed about the companies from developed countries that have the potential to profit from emerging markets’ growth. Many companies in the emerging markets are already champions in their domestic markets and are poised to become global market leaders. This is especially true with BRIC companies.
The economic power is projected to shift from the US and Western Europe to the emerging countries in Asia and Latin America in the next decade and beyond. Goldman Sachs noted in a November report:
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Tom Lydon (ETF Trends) submits:
Yields have been dropping so low we could soon need to dig up a microscope to find them. If you’re an income-oriented investor, don’t lose heart – dividends are making a comeback and exchange traded funds will give you access to them.
After the financial crisis, many banks and other financial companies reduced or suspended dividend payments, remarks Alexander Green for Investment U. But according to Howard Silverblatt, senior index analyst at S&P, “the worst is over for dividends. Standard & Poor’s believes that a dividend recovery is under way.”
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Carl T. Delfeld submits:
Turkish equity markets, which have been among the world’s top performers over the last year, hit some major bumps this week with the arrests over a recent coup plot and ongoing trouble in neighbor and longtime rival Greece spooking investors. The news sent the iShares MSCI Turkey ETF (TUR) sharply down and at $48.7, it has fallen 20% from its 2010 high of $58.5 2010 on February 1st.
This is a reminder that emerging markets are not for the faint of heart and that politics in these markets matter a great deal.
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Ben Axler submits:
Shares of Build-A-Bear Workshop (NYSE: BBW, $6.05/share), are slowly getting the attention they are due from the Street as both its core business fundamentals are improving and new growth strategies are being implemented. However, shares are still considerably undervalued despite a recent rally from a low of $4.50/share earlier this month.
Despite these bullish indicators, Build-A-Bear’s shares remain precariously shorted with nearly 1.5 million shares short or 10.8% of the estimated float. Among other things, the shares may be benefiting from shorts scrambling to cover as technical factors suggest the price may have found a bottom.
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Brandon Matthews submits:
By Brandon Matthews
Over the past year, Sirius XM Radio (Nasdaq: SIRI) investors have become a bit more sophisticated, perhaps to their own detriment. The trouble with Sirius XM is that its common stock has never traded on valuation. There seems to be an attitude towards Sirius XM by some that suggests the share price may have topped out in recent days.
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Dan Wieman submits:
I added some shares of Sharps Compliance (SMED) earlier this quarter. The company provides disposal solutions for medical waste. Trailing earnings look great for the company, but this is largely due to a front-loaded government contract. The real question is whether or not the company can add additional contracts to maintain its momentum.
MagicDiligence has a nice article on Sharps here on Seeking Alpha. They note:
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Jason Schwarz submits:
What are the two most surprising things about Apple (AAPL)? According to Apple management it’s the success of the App Store and the iPod Touch. At a time when the iPod was supposed to fade away into the sunset, the iPod Touch catches fire? Huh? Why would anyone buy a Touch when they can buy an iPhone? People actually pay up to $399 for the Touch. Nobody saw this coming. So what does the surprises success of the Touch and the 3 billion downloads from the App Store tell us about the iPad? A lot.
The iPad finds itself right in the middle of Apple’s sweet spot. Let’s analyze the converging highways of potential buyers. On one highway you’ve got 75 million current iPhone and iPod Touch users who are familiar with the App Store and can’t wait to utilize the bigger screen. On another highway you’ve got 33 million units of 2009 netbook sales showcasing the demand for such a product. Then we’ve got the gamers: According to the Entertainment and Merchants Association 2009 Annual Report once a consumer decides to play video games, they continue to play for life, 68% of all American households are now playing video games and total industry sales jumped to $23 billion in 2008. It is estimated that there are 217 million online gamers worldwide.
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Frank Holmes submits:
New Yorkers looking to catch a glimpse of the world’s hottest car have until late April to visit the Cooper-Hewitt National Design Museum, which is displaying the $2,200 Tata Nano as an achievement in efficient design.
I was fortunate enough to drive “the people’s car” on a recent trip to India (that’s me in the photo).
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Zacks.com submits:
Amylin Pharmaceuticals, Inc. (AMLN) and partner Takeda Pharmaceutical Company Limited recently announced that they intend to advance their obesity combination treatment of pramlintide and metreleptin into phase III studies.
The decision is based on encouraging 52-week results on the combination treatment from a blinded, placebo-controlled phase II extension study in which the combination succeeded in achieving the key target of sustained and robust weight loss.
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Sean Hannon submits:
On occasion, the simplest ideas are the most effective. When I sent last Thursday’s bonus article to subscribers of my weekly newsletter EPIC Insights, I focused on Cliff Natural Resources (CLF). With a trailing P/E of 33, a forward P/E of 13, and a dividend yield of 0.66%, the stock was fairly valued and from a fundamental perspective did not offer a compelling reason to either own or be short the stock. Technical analysis led to the same conclusion: after breaking a long-standing uptrend (black line) in early January, CLF had meandered for weeks.
After dismissing a trade on technical merits, I turned to an event-driven strategy. Having just reported robust earnings, CLF was prepared to rally. Never one to chase a move, I examined the prior earnings announcements and saw an interesting pattern. Each time CLF reported results, the direction of the price movement the next day (blue arrows) started a move that persisted for weeks. Expecting a rally and looking to exploit this tendency, I recommended buying the stock with a $55 upside target.
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Paul Price submits:
Endesa Chile (EOC) is an electrical power producer in Chile that handles 36% of the installed base capacity covering 9% of the Chilean population. They also operate in Argentina, Peru, Columbia and Brazil. Production is environmentally friendly with hydroelectric production at 70.7% , geo-thermal at 28.9% with the small remainder coming from wind. 
2009 proved to be a record year with earnings rising from $3.11 to $4.11/share. In fact, last year was the seventh consecutive year-over-year improvement. Here are EOC’s per share (except revenues) numbers as reported by Standard and Poors:
|
Year
|
Sales($Billions)
|
Earnings
|
Dividends
|
Book Value
|
Avg. P/E
|
|
2002
|
1.366
|
0.01
|
0.03
|
7.55
|
NMF
|
|
2003
|
1.331
|
0.48
|
0.08
|
9.41
|
27.5x
|
|
2004
|
1.699
|
0.55
|
0.08
|
10.43
|
27.5x
|
|
2005
|
2.012
|
0.73
|
0.14
|
11.69
|
33.5x
|
|
2006
|
2.522
|
1.27
|
0.31
|
12.39
|
24.0x
|
|
2007
|
3.308
|
1.35
|
0.58
|
13.88
|
32.5x
|
|
2008
|
4.787
|
3.11
|
0.79
|
13.55
|
13.5x
|
|
2009
|
4.310
|
4.11
|
1.02
|
16.62
|
10.5x
|
As EOC’s fundamentals have improved their valuation has contracted. At yesterday’s close of $49.04 their multiple is < 12x trailing earnings and less than 11.6x consensus views of $4.24 – $4.39 for 2010. Preliminary estimates for 2011 now run $4.74 /share.
While I don’t expect to see 20+ P/E’s again I do think it’s likely that EOC can command at least the 13.5x multiple that was the previous low before the late 2008 – early 2009 market meltdown. A rebound to even that conservative level could bring these shares back up to $57.24 or 16.7% above the current quote.
Add in the $1.02 dividend and its 2.08% yield and this regulated utility play could see a total return of almost 20% by year end. While not spectacular, it looks pretty good in a world where short term rates are near zero.
Is my $57.24 goal attainable? EOC shares traded as high as $56.20 already in 2010 and peaked at $57.45 in September of 2008. If the expected growth continues into 2011, a thirteen and a half multiple would bring a share price of about $64 by early 2012.
Empresa Nacional de Chile looks like an environmentally sound play that can ‘generate’ solid total returns.
Disclosure: Author is long EOC shares.
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Jim Van Meerten submits:
Last week I sold ScanSource (SCSC) and needed a replacement. When I’m on the hunt, I first go to Barchart and screen for the stocks having the most frequent price appreciations in the last 20 sessions, take the top 10 and then do some additional screening to see what should be eliminated. The stock I had left was Church & Dwight Company Inc (CHD). The name didn’t ring a bell with me and I was surprised to find that it was the name of holding company that owns Arm & Hammer – products I’ve been using for years.
First let’s see why it came up on my list. The stock had a price appreciation in 14 of the last 20 trading sessions and was 5 for 5 recently. It has enjoyed a 7.97% price increase in the last month. On Barchart’s 13 technical indicators the stock has a buy signal on 12 of the 13 indicators. This stock has the positive and consistent price momentum I like.
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Investing, Long Term Investment, stock market | admin February 26, 2010 | 
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