The S&P 500 ($SPX) and the broader Russell 3000 ($RUA) dropped 0.3% on Thursday, July 28th, 2011. Of the 4,600 stocks that were tracked, the top 25 losers that closed above $1 at market-close on July 28th and fell 10% or more were analyzed to determine if they would continue going down, or if they would reverse their moves going forward. The following are the best buy and sell ideas based on that analysis:
Buy Alcatel-Lucent ADS (ALU): ALU, the telecommunications giant, is the result of a 2006 merger between France-based Alcatel and U.S.-based Lucent Technologies. It operates in over 130 countries worldwide, and is a leading provider of telecommunications equipment and services to fixed line, wireless, and internet service providers. It is also the world leader in ADSL1 equipment. ALU shares were down 20.4% on Thursday, and they are up 32.1% YTD.
The company reported that in the June 2011 quarter, they swung to a profit of 5c, beating analyst estimates of 2c. Revenue, however, came in under at $5.67 billion versus the $5.73 billion estimate, and the company confirmed that it would meet its fiscal year targets. ALU trades at a forward 7-8 P/E, at the bottom of its historic range, and also at a steep discount when compared to most of its peers, including JDS Uniphase Corp. (JDSU) that trades at a forward 12 P/E, Tellabs Inc. (TLAB) that trades at a forward 100+ P/E, Numerex Corp. (NMRX) that trades at a forward 17 P/E, Cisco Systems Inc. (CSCO) that trades at a forward 10 P/E, and others. The entire sector was driven lower yesterday due to continuing concerns over the macro-economy and its impacts on enterprise spending as well cuts in government budgets and spending, and also concerns that network investment by telecom service providers may be slowing down.
We believe that while concerns over the economy and carrier spending may be valid, ALU maybe the best value in the sector, trading at a historically low P/E and at a steep discount to its peers, while executing a turnaround and projecting earnings rising from 10c loss in 2010 to 28c profit in 2011 and rising to 51c profit in 2012. The stock continues to trade at lows, down almost 80% from its 2004 high, and is currently in free fall along with the rest of the networking stocks.
We would wait for it to bottom and buy in stages so as to take advantage of any further weakness. The stock has firm support in the $3.50s, so the downside appears limited whereas the upside is high in the long-term as the company continues its turnaround, increasing revenues at a modest pace along with rapid earnings growth. It seems that analysts would agree with us, as they have a mean target of $7.26, with a high of $10, well above current $4.01 price; and of the 15 analysts that cover the company, nine rate it at buy/strong buy, four at hold, and one each rate it at underperform and sell.
Sell Miller Energy Resource (MILL): MILL is engaged in exploration and production of oil and gas in eastern Tennessee and south central Alaska. Its shares were down a steep 23.3% on Thursday, and they are up 3.8% YTD. MILL was down yesterday on concerns over a negative Street Sweeper article on Thursday that among other things accused the company of over-inflating the value of some Alaska energy assets that the company acquired from their actual worth of $4.5 million to $350 million on its books. These are all serious accusations, and we would steer clear of this stock until the company is able to refute them.
Sell Akamai Technologies Inc. (AKAM): AKAM is a global provider of services that help enterprises and e-businesses improve the delivery of their content and applications over the Internet. Its services include dynamic content and application delivery, application performance technologies, traffic management, and online storage and load balancing. It offers content delivery network services and streaming media services in addition to private content delivery. Its solutions enable its customers to operate their web transaction anywhere anytime with cost-effective outsourced infrastructure, and to carry out predictable, scalable, and secure e-business at low costs. Its shares were down 19.1% on Thursday and they are down 49.3% YTD.
AKAM shares took a dive on Thursday in response to a disappointing June quarter report, in which the company missed revenue and earnings estimates, and guided down September revenue and earnings to $273-$283 million and 31c-34c versus consensus analyst estimates of $288.7 million and 38c. At issue is its leadership and pricing in the CDN market in light of stiff competition from Level 3 Communication (LVLT) and Limelight Networks Inc. (LLNW).
AKAM trades at a forward 13 P/E, in the bottom one-third of its historic P/E range, while earnings are projected to increase at 15% compounded growth rate from $1.43 in 2010 to $1.78 in 2012. We believe that AKAM shares are fairly priced at its closing price of $23.84 on Thursday, and in the light of the just announced disappointing June quarter and September outlook and a general slowing down of revenue and earnings growth, the bias is for AKAM to trade flat to down in the short-term. We would sell out of this stock and look for opportunities elsewhere.
Triquint Semiconductor (TQNT): TQNT manufactures a broad range of high-performance RF, analog and mixed-signal ICs that are incorporated into a variety of communications products, including cellular phones and pagers, fiber optic telecommunications equipment, satellite communications systems, high performance data networking products and aerospace applications. Its shares traded down 26.7% on Thursday, and they are down 36% YTD.
TQNT shares took a beating yesterday after the firm announced that in the June quarter revenue came in below analyst estimates, and they guided down for the September quarter to $225-$235 million in revenue and 16c-18c in earnings versus analyst estimates of $262.5 million and 25c. The company has blamed weak guidance on the weak economy and its decision to turn its focus from 2G chips to 3G and 4G chips, but many analysts have cited a weak competitive market, including market share intrusions from RF Micro Devices Inc. (RFMD) and Avago Technologies Ltd. (AVGO), may have also played a role in the weak guidance, which has much wider company-specific implications. However, shares have dropped significantly, down over 50% from $15+ earlier this year. At the closing price of $7.48 on Thursday, the stock trades at a forward 7-8 P/E, at the bottom of its historic P/E range, and it has strong support in the $6.50 to $7 range. We would be neither buyers nor sellers here, as shares are most likely to remain range-bound between $6 and $9 in the short-term.
Buy Oshkosh Corp. (OSK): OSK manufactures specialty, commercial, fire, emergency and military trucks, truck bodies and crane components. Its shares were down 13.3% on Thursday, and they are down 29.2% YTD. OSK shares were down after the company reported that in the just completed June quarter, they beat analyst estimates on both revenue and earnings. Shares were down over concerns of the impact of lower U.S. defense spending and municipal budgets on the company’s revenues and earnings going forward. However, the stock trades at a very cheap forward 7 P/E, at the bottom of its historic P/E range, over which earnings are projected to increase slightly from $3.36 in 2011 to $3.53 in 2012. Furthermore, shares were up strongly in early July after the filing of a 13D by Carl Icahn of Icahn Capital LP, indicating that he had taken a 9.5% stake in the company. This bodes very well for OSK, as Icahn has a reputation for driving management in companies he owns to increase value for shareholders. We believe that OSK shares are already trading at a steep discount at its bottom range valuation, and that Icahn’s stake should provide some downside support. We would be aggressive buyers on any dip towards the low-$20s range.
Sell Marshall Edwards Inc. (MSHL) and Novogen Ltd. Adr (NVGN): MSHL is an Australian developer of drugs that target components in cancer-cell survival and proliferation to treat various cancers. It is majority owned by NVGN, an Australian developer of pharmaceuticals targeting degenerative diseases and disorders via dietary supplements based on plant compounds known as isoflavones that the company believes offers the real prospect of not only treating, but also preventing, the onset of the common degenerative conditions. MSHL shares fell 26.2% on Thursday on the back of a 135% increase on Wednesday, and they are higher 109.3% YTD. NVGN shares were down 19.2% on the back of a 46.1% increase the prior day, and they are up 105.9% YTD.
The shares of both companies shot up Wednesday on the announcement by MSHL of the publication of its pre-clinical study of NV-128 in chemotherapy-resistant ovarian cancer stem cells. The study illustrated that NV-128 can specifically target certain ovarian cancer stem cells that are resistant to chemotherapy and induce cell death in a pre-clinical setting, thereby providing sufficient proof of concept to warrant further study beyond the pre-clinical setting and on ovarian cancer patients. While the drug, if successful, does target a large market (over 82,000 women in the U.S. are diagnosed with gynecologic cancer each year), and the company even with yesterday's surge is trading at a paltry $22 million in market capitalization, we believe that it is too early to speculate on this position. If all goes well, the company plans to file an Investigational New Drug application with the U.S. Food and Drug Administration (FDA) by the first quarter of 2012. On average, only one in five biotech drugs that enters a Phase one trial is eventually approved for marketing, and the average cost of development is $800 million, and it takes on average five to seven years after the IND to reach commercialization. We continue to believe in our prior assertion that it is most likely that like other pre-clinical success stories, both stocks may experience a one- or two-day pop in price before they retreat as reality on drug development times, cost and success rates temper the initial enthusiasm we saw yesterday.
Sell Clearwire Corp. (CLWR): CLWR provides wireless broadband networks for delivery of residential and mobile internet access and voice services. CLWR customers connect to the Internet using licensed spectrum, thus eliminating the confines of traditional cable or phone lines. The company offers its service in fifty U.S. markets, we well as in Europe. The stock fell 22.4% on Thursday, and it is down 58.3% YTD. The shares currently trade near its all-time lows and are down almost 95% from its $35 highs in 2007.
The dive yesterday was on news of a $9 billion partnership Sprint Nextel Corp. (S) announced with 4-G wholesale provider LightSquared, whereby Sprint would license some of its unused wireless frequencies to LightSquared, which the 4-G wholesaler will use to deploy its 4G network. In return, S will buy back some of the 4G services from LightSquared and offer it to Sprint customers. This clearly bypasses CLWR, and is a huge negative for the company. CLWR shares dove yesterday in response to this drive towards its own irrelevance, and will probably remain under pressure as it is difficult to see any positive catalyst come out of this in the short-term.
Royal Caribbean Cruises (RCL): RCL operates in cruise vacation industry in North America and internationally, and owns five cruise brands: Royal Caribbean, Celebrity Cruises, Azamara Club Cruises, Pullmantur Cruises and CDF Croisieres de France. Its shares were down 12.6% on Thursday, and they are down 33.5% YTD. The shares were down in response to its June quarter report in which it missed revenue estimates and guided down FY 2011 earnings.
Quantum Corp. (QTM): QTM is one of the world's leading storage suppliers in the markets it serves: desktop tape drives, tape media products, tape automation systems, and disk-based backup systems for networks. Furthermore, it is also the leading supplier of high-end hard disk drives. The stock was down 13.4% on Thursday, and it is down 27.2% YTD. Its shares were down on Thursday in response to a June quarter report in which it missed revenue and earnings estimates, and guided down September quarter revenues below consensus estimates.
Credit: Historical fundamentals including operating metrics and stock ownership information were derived using SEC filings data, I-Metrix® by Edgar Online®, Zacks Investment Research, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.
Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our ‘opinions’ and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.