If you thought the holiday season would be a slow one in the markets, you would be wrong. There has been plenty of action, and today I've chosen to highlight five particular names that are more active than usual. One name received some negative comments from a hedge fund investor who is now short the name. This isn't the first time a hedge fund has gone after the company. Another company will be reporting Thursday afternoon, and investors will be looking to hear not only the quarterly results, but more about its huge upcoming product launch. A third name has been heavily involved in recent M&A news, and is set up for a battle between shareholders over the offer price. All of these stocks are worth a look now.
The maker of namesake nutritional and weight loss supplements fell to a 52-week low on Wednesday after hedge fund manager Bill Ackman stated he had taken a short position in the company. Ackman called the company a "pyramid scheme". In response, Herbalife CEO Michael Johnson stated that Ackman is trying to manipulate the stock price, and that the SEC should look into the matter.
This is not the first hedge fund manager to question Herbalife. Earlier this year, David Einhorn asked some questions in regards to disclosures within the company's filings. Herbalife stock was in the low $70s before Einhorn's questions, and fell to the mid $40s within a matter of days. Einhorn hasn't spoken about the company since, and the SEC did question the company's management, as the article above states.
Shares of Herbalife fell $5.15 on Wednesday, or 12.12%, to $37.35. At the daily low of $35.95, shares were more than 50% off the 52-week high of $73.00. When the original fall took place in May, it lasted for a couple of days before the stock finally regained its footing. On Thursday morning, Herbalife shares were down another 5% to $35.57.
Herbalife is expected to grow revenues by 17% this year and another 11% next year, with earnings per share forecast to rise at slightly faster rates. The questions that are being asked by Einhorn and others are in regards to how those sales actually come. Are those sales direct to consumers or going through distributors? The company changed some of their disclosures, which is what Einhorn originally questioned. Einhorn was looking for more clarity, and since he has a track record of bringing down stocks, Herbalife quickly plunged.
For short-term traders, Herbalife is a dream stock. The extra volatility has this stock bouncing around like a ping pong ball. Like I mentioned above, Herbalife was slammed when Einhorn made the original comments, but those who bought a few days after the initial fear got a 30% return on their investment. Herbalife may continue downward for another couple of days, but the company stands by its products, and if their financials are good, this stock will rebound.
Research in Motion (RIMM):
The BlackBerry maker goes into today's earnings report only about 50 cents off its recent high. Sure, $13.74 doesn't seem like much for a stock that was around $70 less than two years ago, but Research in Motion is up 121% since its bottom at $6.22.
Given the stock's huge rally recently and the positive surprise we saw with Q2's results, I think expectations are high for this company. RIM widely beat sales expectations last quarter and had a smaller loss than expected. Investors will be looking for a similar result this time around.
So here is what to expect when Research in Motion reports Thursday afternoon. Analysts are looking for $2.66 billion in quarterly revenues, which would represent a 49.1% drop over the prior year period. A loss of 35 cents per share is forecasted, compared to last year's profit of $1.27. Every analyst expects the company to report a loss. Another important number to watch for will be the subscriber base, which rose unexpectedly last quarter to roughly 80 million. Most analysts expect it to be flat this quarter. Investors will also be listening in to hear how the BlackBerry 10 launch is progressing. A launch date has been set for the end of January, and this new set of phones is probably a last stand for the company. Market share is plunging, and if the new phones aren't a hit, this company could be gone within the next year or two.
Other than the above headline numbers, I'm really curious to see how the balance sheet is doing. Last quarter, the company's cash pile increased by about $100 million, at a time where many were expecting the company to burn through cash. The company did collect a fair amount of receivables, which helped boost the cash position. We'll see if that trend continues again. The company had over $2.34 billion in cash and investments at the end of last quarter, which is about a third of the present market cap.
Deckers Outdoor (DECK):
Deckers, the UGG maker, was down 4.34% on Wednesday, despite a note from Sterne Agee that Deckers was set for improvement in the second half of 2013. The firm reiterated a buy recommendation and has a $65 price target on the name, implying a tremendous amount of upside from Deckers' close Wednesday at $35.72. Deckers stock had made a huge run lately from its 52-week low of $28.53 to a recent high of $44.16 just two weeks ago. However, we've lost more than half of that rally, and Deckers is now down more than 20% from that recent high.
Deckers shares had rallied because cold winter weather is usually good for sales of its trademark UGG brand. There were a number of analysts who came out and upgraded the name, but a lot of them weren't increasing their Q4 forecasts. The opinion seemed to be that the stock was just too low and due for an eventual rebound. It also helped that over 15 million shares were short Deckers, which had a diluted share count of less than 37 million at the end of the last quarter. There were a handful of daily short squeezes every time you got an analyst upgrade. Deckers is also actively buying back stock, which might have contributed to the extended rally.
The issue lately is that analysts don't see a rosy month for Deckers, and that point was emphasized recently by Piper Jaffray. If you go to Deckers website, you can find that there are a fair amount of items on sale, and the following link is just the women's sale site. That doesn't include men's and kids items also on sale. This winter has been mild at times, an that is definitely something that could negatively impact the firm. Some analysts have speculated Deckers could discount some items anywhere from 20% to 60%. On their sale sites, you can find some pretty big discounts.
I will admit that I've been a bear on Deckers, and my latest article addressed their potential opportunities and headwinds. As the company mentioned, margins are expected to pick up with their fall 2013 collection, but that's still three quarters away from where we are now. It is definitely possible that Deckers has a strong fall 2013 lineup, but what does that mean right now? It means that Deckers will need to assure investors of its long-term plan. The company has essentially issued revenue or earnings warnings for four consecutive quarters. Another warning will send this stock to a new low, but if Deckers shows that improvement is coming, this stock is headed for $50. Right now, analysts forecast Deckers' revenues to grow in the low to mid single digits this year and next. That's a huge slowdown from the 20%, 30%, 40% growth levels that we've seen in recent years. Also, Deckers earnings are forecast to plunge by about 30% this year, and only recover about a quarter of that drop next year.
For those looking to take part in the Deckers rebound, the stock is now down about $9 from its recent high. This might be the opportunity to get in, for those that didn't want to pay $42 or $44. I'm sure if the stock falls any further, we'll see a few more positive analyst notes to boost this name back up, and given the large short base, that could push this name back to $40 in no time.
Clearwire shares continue to trade below the price at which Sprint (S) offered to buy out the remaining chunk of the company it doesn't already own. Clearwire closed unchanged at $2.87 on Wednesday, 10 cents below the $2.97 offer price from Sprint. Clearwire shares were as high as $3.40 last week on the hopes that Sprint would raise its offer even more, but the new offer has wiped out those speculators temporarily. Clearwire is well off its 52-week low of just $0.83 cents though, and investors are getting a nice premium to where shares traded before the Sprint-Softbank deal was announced.
It appears the battle to gain shares of Clearwire is heating up. Comcast (CMCSA) and Intel (INTC) have agreed to sell their shares to Sprint. Those two companies, along with Bright House Networks, own 13 percent of Clearwire voting shares. On the flip side, activist investor Crest Financial has also increased its stake in Clearwire, in an effort to block the deal. Crest believes that Sprint is getting a bargain bin price for Clearwire, and that the deal should not go through under current terms. Crest has filed suits against both the Clearwire-Sprint deal as well as the Sprint-Softbank deal.
As I mentioned in my article, those that invested in Clearwire over the last few months (not counting the speculators from last week) are getting a sizable premium for their shares. However, those in the Crest camp believe that Clearwire is worth as much as $8 a share, and that Sprint should pay accordingly. $2.97 appears to be the price at which Softbank would agree to a Sprint-Clearwire deal, but this isn't the last we've heard of this. I wouldn't be surprised if Softbank allows Sprint to up the price a little more in an effort to get the deal done, but I don't think Crest or any others trying to block the deal will get the $5 to $8 they may be looking for. For those that are willing to be a little speculative, Clearwire is still trading a few percent below the offer price. Even if Sprint only pays $2.97 for Clearwire, there is a potential for a small gain going forward, and like I said, that's if the offer price is not raised.
General Motors (GM):
The automaker announced it would spend $5.5 billion to buy back 200 million shares from the U.S. Treasury. The company said that the Treasury is looking to exit its position in the automaker over the next 12 to 15 months. The following quote came from GM CFO Dan Ammann:
"We felt this transaction is attractive to the company, good for business and good for selling more cars," Ammann told The Wall Street Journal's Jeff Bennett Wednesday. "It moves us forward and eliminates a significant overhang on the stock that has weighed down the shares."
The U.S. Treasury will still hold about 300 million shares after selling this stake, but the news was very positive for GM shares on Wednesday. Shares finished up $1.69, or 6.63%, to $27.18. While shares did not finish near their high of the day, $27.91, shares did trade at a new 52-week high for part of the day.
In a separate announcement, the company announced it will shift some production on its Camaro from Ontario Canada to Michigan. It is interesting that GM announces the move to bring back production to the United States on the day the Treasury sells a stake. Don't forget that the Canadian government still holds a 9% stake in the company.
General Motors feels that this sale of shares will remove the "overhang" that's existed in regards to this company for quite some time now. The company will be looking for a strong 2013 after what is going to be a disappointing 2012. Revenues for 2012 are currently expected to rise by only 1.1%, with earnings per share forecast to drop by 16%. 2013 is expected to be better, with 3.8% revenue growth and earnings per share almost rebounding to 2011 levels. Investors should be pleased that the US government will soon be out of its GM investment, and that's why shares have rallied on this news.