Five stocks will make their first NASDAQ-100 appearance on Monday December 23, 2013. The changes are the result of the annual re-ranking of the NASDAQ-100 Index. The following five stocks will make their debut as part of the NASDAQ-100 Index: DISH Network Corporation (DISH), Illumina (ILMN), NXP Semiconductors (NXPI), TripAdvisor (TRIP) and Tractor Supply Company (TSCO). This article provides a short analysis of the five new NASDAQ-100 stocks. I find that NXP Semiconductors is the most attractive new listed NASDAQ-100 stock.
I start my analysis with a presentation of the main data and ratio's for the five new stocks (see the table below). This includes the Trailing P/E ratio, Forward P/E ratio, PEG ratio (5y) and the current dividend yield.
|PEG ratio (5y)||2.12||3.36||0.37||2.37||1.89|
Source: Yahoo! Finance
All five stocks performed well this year. The shares gained between 53% and 88% year-to-date. The five stocks have an average Trailing P/E ratio of 38.60. This is almost double the average Trailing P/E ratio of 21.15 for all the current NASDAQ-100 stocks (source: WSJ online). Only NXP Semiconductors has a significant lower Trailing P/E ratio compared to the average P/E ratio for all the current NASDAQ-100 stocks. Tractor Supply Company is the only dividend stock. The current dividend yield is 0.69%. Tractor Supply Company's yield is lower than the 1.35% average dividend yield for all the current NASDAQ-100 stocks.
Next step in my analysis is a short analysis of the activities and financial results of the five stocks. I also compared the ratios in the table above with the ratios of several competitors.
DISH Network Corporation
Profile: DISH Network Corporation offers satellite TV services to more than 14 million customers within the United States and is one of the leading companies in the pay-TV industry. DISH Network announced that the company will trial fixed line services, together with Sprint Corporation (S), in Corpus Christi, Texas. The trial service will be available in the middle of 2014, according to the press release. The company's main competitors are Comcast Corporation (CMCSA), DIRECTV (DTV) and Time Warner Cable (TWC).
Financials: DISH Network Corporation announced their third quarter earnings on November 12, 2013 (this report). According to the report, the company holds more than $10 billion in cash and marketable securities. DISH Network Corporation has $15 billion in long-term debt as well. All together, the company remains highly leveraged with a solvency ratio of 3.55%. The company could become a stable dividend stock in the future, after the company pays back a portion of the $15 billion long-term debt. The positive free cash flow will support the loan repayments and/or dividend payments in the future.
Conclusion: I do not consider DISH Network Corporation as a good investment at its current valuation. The company operates in a very competitive market. This could jeopardize the company's growth potential. On the other hand, the company could become a takeover target in the future, because there is a lot of M&A activity in the company's industry. I doubt that there will be much of a premium though, given the forward P/E ratio of 28.79 times next year's earnings. Further, the company is quite expensive compared to it's main competitors in terms of the Forward P/E ratio and the PEG ratio (5y).
Profile: Illumina, Inc. develops, manufactures, and markets life science tools and integrated systems for the analysis of genetic variation and biological function. The company's main goal is to make a contribution to the extension of the capabilities for clinical studies. Recently, Illumina, Inc. received the first FDA clearance for a high-throughput DNA sequencing analyzer (this press release). The company's main competitors are Thermo Fisher Scientific Inc. (TMO) and Luminex Corporation (LMNX).
Financials: Illumina, Inc. announced their third quarter earnings on October 21, 2013 (this report). Total revenues increased 25%. The company reported a sharp increase in R&D and selling, general and administrative expenses as well. Therefore, non-GAAP earnings per share increased only 10% compared to last year's third quarter. Further, the company recorded a $115 million expense for legal contingencies under US GAAP reporting. This represents the amended judgment associated with the patent litigation brought by Syntrix Biosystems, Inc. The expense was not recorded in non-GAAP earnings, because Illumina believes that Syntrix's claims are invalid.
Conclusion: I do not consider Illumina, Inc. as an attractive stock, because the company looks very expensive compared to its future growth potential. The company has the highest PEG ratio (5y) of the five new listed NASDAQ-100 stocks. Although a high PEG ratio (5y) is usual for growing healthcare companies, I believe there are more stable and less expensive healthcare companies to consider for investors. Further, the outcome of the lawsuit against Syntrix Biosystems, Inc. could result in a major cash outflow for Illumina, Inc.
Profile: NXP semiconductors innovates, designs and manufactures high performance mixed-signal solutions for radio frequency, analog, power management, interface, security and digital processing. The company is present all around the world. Innovation is a key success factor for NXP Semiconductors. This is one of the reasons why the company is headquartered in Eindhoven, the Netherlands. Eindhoven is known for its quality high-tech campus. The company's main competitors are Dialog Semiconductors (OTC:DLGNF), Cirrus Logic (CRUS) and Skyworks Solutions (SWKS).
Financials: NXP Semiconductors announced their third quarter earnings on October 24, 2013 (this report). The company has a net debt of $2,767 million, down $56 million compared to this year's second quarter. NXP Semiconductors targets to reduce their net debt position in the upcoming quarters. The strong free cash flow supports the reduction of the company's net debt position. Further, the market in which the company operates shows a lot of strength. For example, Dialog Semiconductors, one of NXP Semiconductors' competitors, raised its revenue forecast for the fourth quarter with 10%.
Conclusion: I consider NXP Semiconductors as a promising new stock in the NASDAQ-100 Index. The company has the lowest P/E ratios and PEG ratio (5y) of the five new listed NASDAQ-100 stocks. Further, NXP Semiconductors will benefit from very favorable market conditions within the semiconductors industry in the upcoming years. The company's innovations and the favorable market conditions result in a strong growth potential. The company is equally valued compared to its competitors in terms of the Forward P/E ratio (see this article) and undervalued in terms of the PEG ratio (5y).
Profile: Tripadvisor, Inc. is one of the world's largest online travel companies and provides travel advice and booking tools online. The company operates in 34 countries all around the world. Tripadvisor's websites generate around 260 million monthly unique visitors, according to the company's website. Tripadvisor's main competitors are HomeAway, Inc. (AWAY), Orbitz Worldwide, Inc. (OWW) and priceline.com Incorporated (PCLN).
Financials: Tripadvisor, Inc. announced their third quarter earnings on October 23, 2013 (this report). The third quarter revenue increased 3% quarter-over-quarter and 20% year-over-year. The company was able to repurchase 1.4 million share for an aggregate purchase price of $100 million due to strong free cash flow. The free cash flow in the third quarter of 2013 increased by 87% year-over-year to $129.3 million, or 51% of total revenue. The company's balance sheet remains strong, because the cash and short-term marketable securities exceed long-term debt. Therefore, it is likely that Tripadvisor, Inc. will repurchase more of its own shares in the future.
Conclusion: I find that Tripadvisor, Inc. has an interesting business model. It is also a plus that the company repurchases own shares out of the free cash flow. However, the company's growth rate does not match its current valuation. In my opinion, the 3% quarter-over-quarter and 20% year-over-year increase in revenues does not match the company's Forward P/E ratio of 37.96 and a PEG ratio (5y) of 2.37. These ratios are also higher compared to the company's competitors.
Therefore, I remain cautious regarding the company's upside potential and take a position on the sideline for now.
Tractor Supply Company
Profile: Tractor Supply Company operates retail farm and ranch stores in the United States. The company does not only supply tractors and tractor parts. Tractor Supply Company supplies animal products, clothing & footwear, fencing products, hunting products and heating products as well. The company operates in a niche market. The competitors who are most comparable to Tractor Supply Company's business are Home Depot, Inc. (HD) and Jewett-Cameron Trading Company (JCTCF).
Financials: Tractor Supply Company announced their third quarter earnings on October 23, 2013 (this report). The company's net sales increased 13.4% to $1.21 billion from $1.07 billion in the third quarter of 2012. The company completed a two-for-one stock split on September 26, 2013. A stock split could be an indication for an outperformance in the future (see this article). Tractor Supply Company is very active in repurchasing its own shares. The company
repurchased shares for an aggregate purchase price of $90.6 million in the first three quarters of this year.
Conclusion: Tractor Supply Company is the only new NASDAQ-100 stock that pays a dividend. I find (potential) dividends and share buyback programs important for an investment decision. However, Tractor Supply Company is not a traditional dividend stock. Thecurrent yield is only 0.69% and the total pay-out ratio is already 22.7%. I do not consider this stock as an investment at its current price. The company could become a dividend play if the P/E ratiodecreases to a level around 20 times earnings per share.
Five new stocks will make their first appearance as part of the NASDAQ-100 on Monday December 23, 2013. I provided a short analysis of the five stocks in this article. I find that most companies are expensive at their current price, except for NXP Semiconductors. NXP Semiconductors' P/E ratio and PEG ratio (5y) are well below the ratios of the other four stocks. Further, NXP Semiconductors is equally valued compared to its competitors. NXP Semiconductors is the only new NASDAQ-100 stock to consider as an investment at its current share price in my opinion.