It’s not always easy being an all-star. You could hit .340 this year, but only .260 the next year. And there is always someone looking to replace you in the lineup. The same can be said for stocks. There is no guarantee that today’s darling won’t be tomorrow’s dog. With that in mind, we take a look at 10 Wall Street all-stars that could make you money.
Apple Inc. (AAPL): AAPL primarily sells personal computers, mobile communication and media devices, and portable digital music players. Shares traded down a fraction, to $391.82 at the time of writing, off a bit from its all time high of $404.50 earlier this week. We do note that shares of Apple also briefly traded above $400 after the close on July 19, following record earnings. In addition, AAPL trades at a P/E ratio of 15.5.
Can Apple do anything wrong? Ask the company’s legions of devoted users and the answer is a resounding “no”. Consumers love Apple, and they have good reason to. APPL’s fundamentals do not suggest that the company is over-valued. In comparison to peers, including Research in Motion (RIMM) and Google (GOOG), the stock trades at a reasonable P/E of 15.5. Moreover, AAPL has over $75 billion in cash and is blessed with a line of products that continues to dominate in the most competitive areas of the technology market.
While there certainly are risks, most notably the ever changing tastes of users of consumer technology products, as well as potential challenges associated with the company's growing size and suite of product offerings, APPL has shown no signs of not being able to manage these issues with aplomb. Consumers love Apple. Investors love Apple. I love Apple. This stock still has room to advance. To see how AAPL is affecting its competitors, view our article here.
Wells Fargo & Co. (WFC): Operating in three segments: Community Banking; Wholesale Banking; and Wealth, Brokerage, and Retirement. WFC provides retail, commercial, and corporate banking services primarily in the US. Shares were up 1.12% to $28.90 at the time of writing, but down from its YTD high of $34.10 on February 8.
Much like rivals JPMorgan Chase & Co. (JPM) and Citigroup Inc. (C), WFC has benefited from credit quality improvement over the past few quarters. In addition, strategic acquisitions have been part of the company’s strategy to strengthen its business model. Toward that end, WFC recently acquired Castle Pines Capital in an effort to expand its business and add channel financing capabilities.
In the second quarter, WFC’s net income came in at $3.7 billion, compared with $3.6 billion in the prior quarter and $2.9 billion a year earlier. In my opinion, WFC benefits from solid business fundamentals and a strong customer base, but still faces an uphill climb in the effort to show a substantial improvement in revenue. Regulatory issues also threaten to negatively impact WFC’s results. I would avoid the stock.
Berkshire Hathaway Inc. (BRK.B): Led by Warren Buffett, this world renowned investment management company operates chiefly in the insurance and reinsurance of property and casualty risks business. Shares were up fractionally to $74.89 at the time of writing. Historically, BRK.B has grown through acquisitions. In March 2011, it agreed to acquire Lubrizoil (LZ) for about $9.7 billion.
Unfortunately, for the past few years, BRK.B has been a lackluster performer at best. It is no secret that BRK.B’s most significant asset is Warren Buffett, the company’s long time front man. However, Buffett’s advancing age and the question of corporate succession is a significant risk factor for the shares going forward. Given the underwhelming performance of the shares since 2010, mature business holdings, and the competitive nature of the insurance industry, I would avoid the shares and seek growth elsewhere. See Buffett's dividend kings here.
Weatherford International, Ltd. (WFT): WFT provides equipment and services used in the drilling, evaluation, completion, production, and intervention of oil and natural gas wells to independent oil and natural gas producing companies worldwide. Shares were up 0.27% to $22.11 at the time of writing, down from its YTD high of $26.08 on February 17.
In the second quarter, WFT reported adjusted earnings of $0.17 per share, up sharply from $0.10 a year earlier. The outperformance was largely influenced by strong international business, offset somewhat by a weak performance in Canada. WFT guided third quarter 2011 EPS in the range of $0.24 to $0.26, before adjusting for one-time items. In addition, the company expects a seasonal recovery in Canada and gradual improvement in North America and international markets throughout 2011.
However, competition from larger peers such as Schlumberger Ltd. (SLB), a debt-heavy balance sheet, and difficulty in generating free cash flow are reasons for concern. I would not add to current positions of WFT.
Adobe Systems Inc. (ADBE): This company operates as a diversified software provider in the Americas, Europe, the Middle East, Africa, and Asia. Shares were down 0.25% to $28.43 at the time of writing, down from a May 12 high of $35.33. In addition, ADBE trades at a P/E ratio of 15.2.
In July, ADBE announced that it had acquired California-based EchoSign, a leading web-based provider of electronic signatures and signature automation. Recently, ADBE has shown strength in sales of products such as Acrobat and Creative Suite, as well as growth in subscriptions, offset somewhat by slower growth in Japan, ADBE's second largest geographic region.
I believe that ADBE’s leading market position, compelling product lines, strong operating history, and solid balance sheet are all excellent reasons to own the stock.
Netflix, Inc. (NFLX): NFLX provides online movie rental subscription services in the US. Shares were down 0.90% to $266.99 at the time of writing, down from its 52 week high of $298.73 on July 13. NFLX has an inflated P/E ratio of 75.9. NFLX had been riding high until the release of its second quarter results, in which it posted EPS of $1.26, beating expectations, but also warned of a slowdown in growth.
In addition to its belief that it will not being able to sustain previous levels of subscriber growth, NFLX alluded to subscriber pushback on price increases, which could be rising as much as 60%, depending on whether or not a customer wants both NFLX’s DVD and streaming services, which have been separated into two price plans.
Adding to the reasons for concern, Amazon.com (AMZN) recently made a move into the streaming business, which could adversely affect NFLX's longer-term growth prospects. Wal-Mart (WMT) also seems to be getting in on the streaming act. While NFLX had a great run, I think the risk/reward profile on the shares warrants selling.
E*TRADE Financial Corp. (ETFC): Together with its subsidiaries, ETFC provides online brokerage and related products and services primarily to individual retail investors in the US. Shares were up 1.32% to $15.70 at the time of writing. ETFC has a P/E ratio of 55.3.
Since news of its possible sale broke last week, shares of ETFC were up sharply, but have since retreated. Charles Schwab (SCHW) and TD Ameritrade (AMTD) have been mentioned as possible suitors for the brokerage. In the second quarter, ETFC reported net income of $47.0 million compared with $45.0 million in the prior quarter and $35.0 million in the prior-year quarter.
While EFTC’s initiatives to reduce balance sheet risk show promise, I believe it will add near-term pressure on the interest margin. While the company’s capital position and improving delinquency trends are a positive, I believe the decline in trading activity is a strong negative. I would stay on the sidelines and avoid ETFC.
Applied Materials, Inc. (AMAT): AMAT provides manufacturing equipment, services, and software to the semiconductor, flat panel display, solar photovoltaic (PV), and related industries worldwide. Shares were down 1.27% to $12.47 at the time of writing. AMAT has a P/E ratio of 10.5, and offers investors a 2.50% dividend yield. In the second quarter, AMAT reported revenue of $2.86 billion, up 6.6% sequentially and 24.7% year over year.
In May 2011, AMAT announced its intent to acquire Varian Semiconductor Equipment Associates (VSEA), a manufacturer of ion implantation semiconductor equipment. I believe the acquisition would be a good fit for AMAT given VSEA's dominant position in the ion implantation market, an area in which the company lacks presence.
I believe AMAT’s strong position in the semiconductor market and focus on the solar business in China are the company’s biggest strengths at the present time. In addition, AMAT's improved cost structure in its solar segment is encouraging, and the company should see market share gains in both the etch and inspection arenas.
I see AMAT's financial and market share positions as superior to peers, including ASM Intl N.V. (ASMI) and ASML Holding NV (ASML). To see more of our opinion on AMAT's financials, click here. I would rate AMAT as a buy.
Baidu, Inc. (BIDU): BIDU provides Chinese and Japanese language internet search services. Its search services enable users to find relevant information online, including web pages, news, images, multimedia files, and blogs through links provided on its websites. Shares were up fractionally to $161.44 at the time of writing. BIDU has a P/E ratio of 88.7.
In the second quarter, BIDU posted revenues of $528.4 million, a 78% increase from the year earlier period; net income was $252.6 million, a 95.0% increase year over year. BIDU is the leader in the Chinese search segment, and it has notably improved its related offerings and efficiency. The company has also been able to significantly increase its share of the Chinese search market since the exit by Google (GOOG) as a sign of protest against government censorship policies. I also see significant potential in such areas as contextual and display advertising, and certain types of search-related or search-driven content and communications.
Despite possible competitive issues, concerns related to Chinese company financials and corporate governance, I would be a buyer of BIDU.
Whole Foods Market, Inc. (WFM): WFM owns and operates over 300 natural and organic food supermarkets in the US, Canada, and the U.K. Shares were up 3.78% to $67.90 at the time of writing. WFM has a P/E ratio of 39.1, and offers investors a 0.60% dividend yield.
WFM offers investors one of the strongest growth profiles in the industry and generally enjoys a solid brand image. The company is overhauling its pricing strategy and putting more emphasis on value offerings, perhaps in response to the derogatory “Whole Paycheck” perception by some consumers.
I like WFM for future growth. I believe that comparable-store sales will continue to be driven primarily by greater traffic as customers continue to look for increased natural and organic food options, and as increased value offerings lure lower-income shoppers. WFM offers a better bet than grocery operator Kroger (KR) and Target (TGT), which is positioning itself as a go-to grocer via pea-fresh stores, due to WFM's growth prospects.