Cheap Stocks Reporting Earnings Soon

by: NakedValue

Earnings releases and the corresponding management conference call are often stock price moving catalysts. Not only are the latest quarter's financials an important source of information for investors, management guidance can reveal a lot about industry dynamics. In addition, management often utilizes this period to reveal other important information.

These cheap stocks are reporting earnings soon and investors should pay attention.

Micron Technology (NASDAQ:MU) - June 23 - The Idaho-based semiconductor company produces memory chips. Despite booming business, the stock price is hampered by market concerns about future growth and demand as the personal computer market matures and changes.

The roughly $8 billion market capitalization company has a trailing P/E of 5.59 and a forward P/E of 6.64 as well as an equally low price/book of 0.97. The company is extremely sensitive to economic conditions and as such, earnings and guidance outside of expectations could have an outsized effect on the stock. In the year ending September 3, 2009, the company's sales dropped to $4.80 billion because of the economic downturn. In the following year, the economy bounced back and sales jumped to $8.48 billion. As such, in addition to the pressures from a maturing PC market, the company also faces fears that a double dip recession will lead to far lower top and bottom line performance.

Investors should view MU as a cheap company with hidden leverage toward the economic cycle. For those with an average outlook on the global economy, Micron appears to offer margin of safety, but for those with a more bearish outlook, this company should likely be avoided. Investors should pay close attention to recent quarter margins and the forward guidance. The company's margins have come under extreme pressure. Any stabilization should be viewed positively but any worsening of this trend would be troubling.

Oracle Corp (NASDAQ:ORCL) - June 23 - The enterprise software and hardware company's stock price has generally performed very well since the March 2009 stock lows. Like many other technology bellwethers, ORCL trades at reasonable valuations despite a moderately promising business environment.

The company trades at a trailing P/E of 21.34 and a forward P/E of 13.47. The company also has a PEG ratio of 0.92 and a price/sales of 4.74. Over the last few years, the company has successfully and steadily grown revenues from $22.43 billion in the year ending May 31, 2008, to $34.35 billion in the trailing 12 months.

Oracle has impressively grown revenues in all major business segments, including software, hardware products, hardware support and general services. Hardware products and support are a smaller but higher growth business area for ORCL and as such, investors may want to give guidance for this area an outsized level of attention. In the quarter ending February 28, 2011, hardware systems products and support contributed $1.66 billion of the total $8.76 billion of revenues.

Lennar Corp (NYSE:LEN) - June 23 - The U.S. homebuilder has steadily rebounded along with the rest of the stock market but like the rest of the industry, the company's price has been limited by the slow recovery in the U.S. housing market. Investor opinions about Lennar's "cheapness" are firmly based on their stance on the housing market. If U.S. housing is poised for a rebound (even a modest one), then the company's price/book of 1.28 is on its face cheap, but likely even less expensive than it looks because of the wholesale inventory write-downs of the last few years. But if the market is due for additional price declines and demand weakness, then this homebuilder will see limited price upside.

The company trades at a trailing P/E of 26.42 and a forward P/E of 18.10. These ratios do not appear cheap, but for a highly cyclical company, they may not be expensive. Investors should keep in mind that for cyclical companies, the best time to buy is when the price/earnings are the worst and the best time to sell is when the price/earnings are the best. At the peak of the housing bubble, many value investors (Bill MIller being the most notable), jumped on homebuilders because of their single digit price/earnings ratios. This proved to be a very bad strategy.

Lennar Corp (LEN) appears to have stabilized its operations. The company has stemmed the large scale stock issuances while continuing to pay a modest cash dividend. In addition, they have been significantly cash flow positive over the last few years. Investors should pay close attention to guidance. Even a modest amount of optimism could go a long way.

Rite Aid (NYSE:RAD) - June 23 - The national drugstore chain is highly leveraged and distressed. The company operates more than 4,700 stores and generated more than $25 billion in revenues during the most recent fiscal year, but it has struggled in recent years under the unforgiving weight of its large debt and interest expenses. In the year ending February 26, 2011, the company reported $547.58 million in interest expense and more than $6 billion in debt.

Stock performance has lagged and the company trades close to 52 week lows. But with a market capitalization of around $1 billion and a price/sales of 0.04, even modest operational improvement could lead to serious stock price upside. Investors should watch out for positive guidance or any refinancing that could reduce interest expenses without further dilution to shareholders.

The company has a surprisingly notable list of shareholders, including: Jean Coutu Group, Moore Capital Management, DE Shaw & Co and Leonard Green & Partners.

Nike Inc (NYSE:NKE) - June 27 - The athletic wear company has one of the world's most recognizable brands. In addition, it is one of the few companies with genuine global reach and obvious secular opportunities for continued growth. As such, their trailing P/E of 19.47 and forward P/E of 17.07 may be cheaper than they appear.

Investors should watch for guidance and projections of future margins. The company is sensitive to foreign labor and raw materials cost and any persistent inflation in these areas could adversely affect the stock. The stock is already a favorite of large investors such as Oak Hill Investment, Capital Research Global and Jennison Associates. But if the stock faces meaningful weakness in the near future, investors should view this as a potential buying opportunity.

American Greetings (NYSE:AM-OLD) - June 29 - The company owns assets such as American Greetings, Recycled Paper Greetings, Papyrus, Tender Thoughts and Just for You. The dominant player in greeting cards is resilient despite some negative secular trends, but the company has tremendous potential for upside either through improved operational efficiencies or improved margins if raw input costs decline.

The company currently trades at a trailing P/E of 11.28, a forward P/E of 8.24 and a PEG ratio of 0.88. Over the last three years, revenues have shrunk from $1.69 billion to $1.59 billion. The company faces significant and growing customer concentration and as such, investors should pay very close attention to any shifts in these relationships. From 2009 to 2011, the top five customers' percentage of total sales grew from 36% to $42%. Of this amount, Wal-Mart (NYSE:WMT) accounted for 15% and Target Corp (NYSE:TGT) accounted for 14%.

Directors and officers own 29.74% of the company's total shares outstanding. In addition, other notable shareholders include Dimensional Fund, Fisher Investments and Marathon Asset Management.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.