February may be the shortest month of the year, but that doesn't mean it can't be a big month for the markets. Today, I am going to highlight five names I will be keeping an extra focus on this month. Three of the names are on this list because they will be reporting their quarterly earnings reports. The fourth name on this list is an investor favorite that has lost a lot of its shine lately, and there are three reasons I think it could rebound this month. Finally, I want to include a commodity ETF that has been hit hard in recent months, and explain why those struggles could continue in the near term.
Apple had a nice day on Tuesday, rallying 3.5%. However, the stock is down 14% year to date, and has fallen 35% since its all-time high that was reached last year. With investors looking for Apple to rebound, there are a few items this month to think about.
First, how many people who sold Apple at a loss before 2012 ended will now look to buy Apple again? That's right, I'm talking about the wash sale rule. As Apple fell from its high above $700 to the low $500s in the end of December, there were some investors who decided to sell and take the tax break. For those who have abided by the wash sale rule and have waited 30 days to get back into Apple, they now can.
The second item is the dividend. Apple's dividend will be paid to shareholders of record on February 11th. Those that want the $2.65 dividend must be in by then. This will be Apple's third payout of $2.65. I believe that they will payout the $2.65 next time around, and a dividend raise is likely after that. My current projection is for a raise to $3.00 per quarter, and I'll discuss this in more detail over the next few weeks. Apple currently yields 2.31% on an annual basis.
The third reason I am interested in Apple this month is the upcoming shareholder meeting on the 27th. There will be a couple of items I'll be looking for that day. First, do they raise the dividend as I noted above? Second, does Apple decide to enlarge its buyback plan in an effort to prop up the share price? Finally, does Apple consider a stock split? These are three items investors have been pondering lately and I think we'll get something out of the company at this meeting.
I still think Apple's earnings fall was unjustified. The company produced one of the greatest corporate quarters in history. Shares have been whacked since then as Apple's guidance has led analysts to slash earnings estimates and price targets. On January 3rd, analysts were expecting $47.06 billion in Q2 revenues and earnings per share of $12.15. By the time Apple reported on January 23rd, those estimates were down to $45.63 billion and $11.70, respectively. They now stand much lower, at $42.94 billion and $10.24. Likewise, analysts have taken down their price targets tremendously. The high target on the street of $1,111 is now down to $888. The average target was around $750 just a month or two ago. The average target is now under $635 and that still represents almost 40% growth from here.
I think that Apple could have a good February, as those that sold as much higher prices re-enter the name. It wouldn't hurt if the dividend or buyback were increased either. However, if we don't hear any news from the company, I think shares will continue to trade flat for a while. The next big items I will be looking for is a new iPad in March, and the company's fiscal Q2 earnings report in April.
Green Mountain Coffee Roasters (GMCR):
The k-cup coffee company will release its quarterly report this Wednesday, which is sure to heat up the bull/bear debate some more. Green Mountain had some patents that expired in September, and bears are arguing that new players will emerge in the space. A recent report from Starbucks (SBUX) shows that Starbucks' Verismo system isn't going to be the Green Mountain killer some thought it may be. Green Mountain shares were down to just $15 in early August, but a $500 million buyback plan roasted the shorts, doubling the share price in less than two months. Green Mountain solidified the rally with an impressive Q4, and shares are now at their highest point since before the May 2012 plunge.
Current estimates call for 15% revenue growth in fiscal Q1, which is actually below the company's midpoint for 14% to 18% growth. Analysts expect $0.65 in earnings per share, fairly consistent with the $0.62 to $0.67 range the company guided to. If Green Mountain has a decent revenue beat, I would expect them to potentially raise their 15% to 20% yearly revenue growth forecast. They probably will raise their earnings per share forecast as well, but that's only because their previous forecast doesn't include any share buybacks after November 27th. If they've bought back more shares, we'll find out this week.
In addition to the guidance given by the company, I will be looking specifically for four things in this report:
- How many shares were bought back during the quarter and at what price? The company may also tell us how many shares were bought back since the end of Q1.
- Are gross margins improving? Green Mountain has had some manufacturing difficulties that have hurt margins, and volatile coffee prices always impact margins.
- Balance sheet and cash flow. Green Mountain doesn't have a large cash balance. In the past, most cash has been used up by capital expenditures. In recent quarters, they have drastically cut capital expenditures, which is part of the reason why they have money to buy some shares. I'd like to see the company do both as well as generate some extra cash.
- When are you expanding internationally? Green Mountain hired an executive a number of months back to look at expanding outside of North America. Does the company provide details on when and where they plan to go next?
Market Vectors Gold ETF (GDX):
The gold miners have had a rough couple of months, with the miners ETF losing about 15% over the past three months. That compares with the SPDR Gold Shares ETF (GLD) down less than 1% over that time. Miners have taken a hit over fears of an upcoming "production cliff". Big names like Newmont Mining (NEM) have led the decline. Newmont is at a 52-week low after its 2013 production forecast was slightly below that the company expected to do in 2012. Fears of resource nationalism in the Dominican Republic have recently hurt Barrick Gold (ABX) and Goldcorp (GG).
Even with the GLD rising almost 1% last week after the Federal Reserve's continued plan to keep rates low, the GDX underperformed the GLD. The miners have continued to be hit over production issues, even with the price of gold rather stabilized in recent months. With many of the miners at or near 52-week lows, you would think that any bounce in gold would help the miners stage a huge rally. However, that has not been the case of late.
Recently, the miners have done best around Federal Reserve meetings. The next Fed meeting isn't until March 19th and 20, and that's quite a bit in the future. Gold prices are around $1,675 per ounce now. Given the production issues I noted above, I think the metal needs to get above $1,700 an ounce for miners to rally. If prices stay the same, I don't think the miners do well, because they are producing less right now. Lower production means lower revenues and earnings. The problem I see here is that if gold starts to go lower, down towards the $1,600 level, I could see two to three times as much downside in the miners as I see in the actual metal. If gold loses some of its luster over the next few weeks, miners could drop another 10% easily.
Deckers Outdoor (DECK):
The retailer known for its UGG brand should be reporting earnings late in the month. While the company has not announced an official date just yet, they have announced 4th quarter and full year earnings in the last week of February every year since 2003. Deckers shares are down more than 53% over the past year, as 2012 was a disappointment. Original estimates called for revenue and earnings growth in the mid to high teens, percentage wise. When Deckers reported third quarter results, their forecast was for just 5% sales growth and a 33% drop in earnings per share.
Expectations are very low at this point given that the company has issued below analyst expected guidance for four straight quarters. Deckers guided to 4th quarter revenue growth of 6%, but analysts are only expecting 3.3% growth currently. Deckers guided to a 14% earnings decline in the quarter, while analysts are looking for a 17.6% decline.
The key in this report will be the company's guidance for 2013. Analysts are looking for 4.6% revenue growth, and earnings per share to rebound to $3.71 (from an expected $3.34 in 2012). However, they did $5.07 in 2011. One of the main reasons Deckers struggled was high sheepskin prices. The company stated those costs will come down a bit with the fall 2013 lineup, which will help boost company margins. Monday's upgrade was based on the potential rebound.
Deckers is an interesting case because fiscal Q1 will be about 2/3 done with by the time we get their report. The company will know how well the quarter is going, and that will be reflected in their guidance. While the guidance will be key, here are some other items to watch closely for in this report:
- The buyback - Deckers has bought back a few million shares in recent quarters, at prices well above where the stock is trading at. Will this be a quarter where they buy shares back below where we are at?
- Credit line / debt - Deckers tapped into its credit facility for Q4 to increase capital expenditures and inventory, as well as buy back stock. Have they paid this money back, or do they still have funds outstanding?
- Margins. Deckers has stated that margins should rebound in the second half of 2012. They also have been hurt by high operating expenses in recent quarters, so I want to hear if those expenses will come down (not grow as fast) in 2013.
Cisco Systems (CSCO):
The networking and technology giant will be in the spotlight next week as the company is scheduled to report on the 13th. Cisco shares are only 1% from their 52-week high, so this earnings report could result in a new high. Two quarters ago, Cisco shares rallied after earnings, but were not able to hold their gains over time. However, since Cisco's latest report, shares have not only held their gains, but rallied another $3 since then.
When Cisco reported fiscal Q1, it gave Q2 revenue guidance for growth of 3.5% to 5.5%, and earnings per share of $0.47 to $0.48. Analysts currently are slightly above the revenue midpoint, at 4.6% growth, and are looking for $0.48 per share. The one negative was that Cisco guided gross margins to be in a range of 61%-62%, down a bit from FQ1's 62.7%.
Given the huge rally in shares over the last couple of months, Cisco will be looking to avoid the "buy the rumor, sell the news" phenomenon. A number of large tech names, including Facebook (FB) and Intel (INTC), saw huge rallies into earnings, only to be hit afterwards. Cisco analysts are expecting revenue growth to accelerate to 5.4% in fiscal Q3, so Cisco will need a solid forecast if it wants shares to remain high.
Cisco's report could be even more interesting after Monday's news that Oracle (ORCL) is buying Acme Packet (APKT). This would mark Oracle's first foray into infrastructure gear, and could pose potential competition to Cisco down the road. I'm curious to see if Cisco mentions the Oracle deal on their conference call.
Additional disclosure: Investors are always reminded that before making any investment, you should do your own proper due diligence on any name directly or indirectly mentioned in this article. Investors should also consider seeking advice from a broker or financial adviser before making any investment decisions. Any material in this article should be considered general information, and not relied on as a formal investment recommendation.