By Larry Gellar
Using Yahoo Finance’s list of NYSE volume leaders, we’ve identified the 5 NYSE stocks (ETFs excluded) that saw the most trading Tuesday. This list includes a bank, two companies involved with mobile communications, a conglomerate, and an auto manufacturer. Let’s see who they are:
Bank of America (BAC) – This troubled bank has gotten shellacked in 2011, as many investors believe that the company’s balance sheet is worthless. With this in mind, Bank of America has recently announced that it will be selling its international credit card divisions, and this is a decision that we think will help the company tremendously. Bank of America’s credit card businesses were a great choice to sell off because it gives the company more cash and reduces the amount of money needed to back up its operations. Additionally, credit cards tend to be one of the riskier aspects of a bank’s business, and BAC could clearly use some risk reduction right now.
Bank of America is also looking to dispose of some real estate owned by Merrill Lynch, and this too should benefit the company greatly. While negative earnings have made the company’s price-to-earnings ratio and price/earnings-to-growth ratio meaningless, it’s still useful to take a look at price to sales for BAC and some of its competitors. This number is 1.10 for BAC, 1.45 for Citigroup (C), 1.55 for JPMorgan Chase (JPM), and 1.82 for Wells Fargo (WFC). Clearly, Bank of America is trading for a discount, and yet it is surprising that this discount is not greater considering the company’s recent problems.
Nokia (NOK) is now trading at about half of what it was earlier in 2011. The stock has recently been reacting to Google’s (GOOG) bid for Motorola Mobility (MMI), as many investors speculate that Microsoft (MSFT) will now be forced to try to pick up Nokia. Nokia has already limited its U.S. products to those with Windows Phone 7, so this would be not be an unusual move on the part of Microsoft.
Additionally, the only other reasonable acquisition target would be Research in Motion (RIMM), but there are numerous factors why this wouldn’t make sense. RIMM is now focused on its next operating system, named QNX, and analysts believe that the board would be resistant to a takeover. In fact, even a takeover of Nokia is unlikely due to the company’s sprawling operations. Also, keep in mind that Microsoft already has numerous agreements to share patents, so it’s not clear whether it really needs an acquisition.
Aside from Research in Motion, LM Ericsson (ERIC) is another competitor of Nokia’s, and both companies offer price to earnings ratios in the low-teens. At 2.38 though, Nokia has double the price/earnings to growth ratio. LM Ericsson also offers better gross margin and operating margin, although at a significantly higher price to sales ratio.
Sprint Nextel (S), as opposed to Nokia, is on the service provider side of mobile business. S has seen price appreciation over the past few days, and at least one writer is speculating the possibility of a Google acquisition of Sprint Nextel. As far as business goes, Sprint Nextel is notable for having one of the first 4G-capable networks. While this hasn’t prevented S stock from plummeting the past 2 months, it is important because it makes S a possible acquisition target even for companies like Microsoft and Apple.
On the other hand, Sprint Nextel’s operating margin of 0.15% makes it a pretty unappetizing choice for any of the mobile giants. Additionally, Sprint Nextel has been reporting negative income for the past 12 months, although the company’s price to sales ratio is currently a rock-bottom 0.32. Aside from takeover talk, Sprint Nextel is also being affected by news that it will not work with Research in Motion to provide 4G capabilities for the Playbook. This is unfortunate, because the Playbook is actually a great alternative to the iPad, but the Apple hysteria is just too overwhelming. On the other hand, Sprint is planning to provide services to a number of Motorola products, and having Google in the mix certainly won’t hurt.
General Electric (GE) nearly hit $22 earlier in the year, but is now trading in the teens. Although news on GE is relatively minimal these days, the stock remains a favorite among traditional investors. Many of the company’s divisions are doing well despite a slightly disappointing earnings report. GE is also notable for its solid 3.8% dividend yield.
Recent news affecting the stock has included the company’s acquisition of PAA Laboratories, and this is a move we are inclined to applaud, despite the fact that deal specifics were not announced. PAA should be a good fit for GE Healthcare, assuming GE did not overpay for the company. Many investors are also excited about a couple of new products coming out of GE Intelligent Platforms, notably a miniature video tracker and a miniature image stabilizer.
Although comparing GE to competitors is always difficult due its gargantuan size, we like taking a look at Siemens AG (SI). In fact, these stocks offer rather different value metrics, with GE boasting the lower price to earnings ratio, while Siemens captures the lower price/earnings to growth ratio. While GE’s price/earnings-to-growth ratio is reasonable, Siemens is practically on sale with a price/earnings-to-growth ratio of 0.27.
Ford Motor (F) has lately been affected by changing estimates of future new car sales, and outlook has worsened. Trading near $19 earlier in the year, Ford has already been hit hard by the economy, but fortunately for shareholders, some analysts believe that the stock is still priced cheaply. Note that with a beta of 2.36, Ford is prone to violent swings based on changes in market sentiment.
This is not a stock for the squeamish, and it may not be a stock for anybody with value metrics that are outdone by competitor General Motors (GM). General Motors offers a lower price-to-earnings ratio, a lower price/earnings-to-growth ratio, and a lower price-to-sales ratio. Ford fights back though with a higher gross margin and a higher operating margin. While we believe the auto industry as a whole is not the place to be right now, we know some investors out there will want to capitalize on a potential economic recovery as soon as possible. With this in mind, we think this Forbes analysis is worth considering, with its bullish position on F right now. Amongst other things, the article highlights Ford’s success with fuel-efficient cars such as the Fiesta and the Focus.