Despite yet another poor economic report, the Nasdaq (QQQ) was up about 2.5% Friday. Let’s take a look at 5 stocks in particular that had heavy trading:
Yahoo! Inc. (YHOO) – YHOO had a number of headlines on Friday. At least one analyst believes the company is interested in making a move with its Japan unit, and three options seem to be available. YHOO can spin the unit out, create a tracking stock, or try to get some other parties involved.
Brian Pitz continues to rate the stock at Neutral and focused especially on web site traffic from July. Those numbers show that less and less people are using Yahoo. Moving his price target down over $2, it’s quite clear that Pitz is not very bullish on this stock. YHOO shares have also been in the news because Softbank (SFTBF.PK) will use its holdings to pay off a loan from Citigroup (C).
Permission to do this was granted a long time ago, when YHOO was trading for much more. In fact, at least one writer thinks Citigroup got worked. Despite YHOO’s fall from grace though, it still trades at a higher price/earnings to growth ratio than peers like AOL and Google (GOOG).
Price to earnings and price to sales are more reasonable though. Margins are also average, but the real problem for YHOO lies in its quarterly revenue growth of -23.30%. In other words, quite the opposite of growth.
Star Scientific, Inc. (CIGX) had a horrible day, down nearly 40%. This was due to the fact that the company’s attempt to get a new trial against Reynolds American (RAI) for patent infringement was denied. In fact, many investors now believe the company is valueless, especially taking note of trailing twelve month losses totaling $20.94 million.
For a company with 31 employees, that $20.94 million is pretty big. CIGX’s fight isn’t over yet though. Essentially at issue is a technique that reduces the chance of cancer caused by tobacco, and there is yet another lawsuit that CIGX will pursue against RAI. With revenue of only $770,000 and corresponding price to sales ratio of 526.19, CIGX’s only hope is any other litigation that can bring in royalties.
The company has actually had positive cash flows for 2010 as well as the first half of 2011, but this is merely due to aggressive issuing of stock. Financing for this company will probably dry up now, as investors seek greener pastures. In fact, those greener pastures may present themselves in the form of tobacco giants like Altria Group (MO), Lorillard (LO), and Reynolds American (RAI).
OmniVision Technologies Inc. (OVTI) too had a horrid day, down over 30%. As discussed by The Motley Fool, the earnings report actually wasn’t that bad, and the problems have arisen from what the company is expecting next quarter.
In fact, the company’s expectations were so bad that many have speculated that the company is losing its business with Apple (AAPL). In fact, Apple could theoretically be getting chips from Sony (SNE), STMicroelectronics (STM), and Panasonic (PC) instead. That’s not necessarily the case though, and executives said the poor outlook has nothing to do with phones.
Rather, it has everything to do with the economy as well as declining demand for new PCs. When stocks plummet like this, we like to take a look at insider transactions to see what’s really going on. But, OVTI has actually been quiet on that front. In fact, the last time insider trading was heavy was the end of June/beginning of July.
Note that the latest earnings put trailing twelve-month EPS at 2.49. At a current price of 17.29, this means price to earnings ratio is 6.94. This is higher than its biggest competitor STMicroelectronics, which has a price to earnings ratio of 5.63. As for cash flows, the company brought in $145 million for the 12 months ending April 30.
Apple Inc. (AAPL) – Most recently affected by the departure of Steve Jobs of course, AAPL shareholders are now wondering whether the company can continue its hot streak. As discussed here, the people who are now the company’s top 5 executives have all been with Apple for quite some time.
New CEO Tim Cook isn’t actually new to that job since he’s taken over for Jobs during his previous medical leaves. Jonathan Ive is a tremendous asset, notable for his iPod, iMac, and iPhone designs. Scott Forstall is more on the software side of things, and Peter Oppenheimer and Philip Schiller round off the team. Needless to say, this group is extremely capable, many of them remarkably similar to Jobs himself.
Other headlines have included Apple removing TV show rentals from the iTunes Store, and although options to buy episodes or seasons remain, we think deeper issues linger. Many of Apple’s video offerings at the iTunes Stores are outrageously priced at a time when video piracy is stronger than ever. Although ISPs like Comcast (CMCSA) have been notorious for its attempts to stop users from downloading videos illegally, lower prices would probably have a dramatic effect on demand. Steve Jobs has talked about this need to price aggressively too.
Dell Inc. (DELL) – Does the end of the Steve Jobs era make Dell a buy? Maybe - the stock was up over 3% on Friday. An acquisition of Force10 Networks doesn’t hurt either, and Force10 should help Dell’s networking business significantly. In fact, further details of why Dell chose Force10 can be found right on the Dell web site. Dell has also received attention for its work with desktop outsourcing and datacenter outsourcing.
Against competitors like Hewlett-Packard (HPQ) and IBM, Dell’s margins are somewhat low. Gross margin is 21.53% and operating margin is 7.53%. Quarterly revenue growth is only 0.80%. And many investors will probably think that the price/earnings to growth ratio of 1.23 is just too high. On the other hand, price to earnings ratio of 7.85 and price to sales ratio of are 0.43 are both reasonable.
Also, cash flows for Dell have been quite good. $3.278 billion came in for the period that is essentially 2010, and $710 million has come in for the 26 weeks since then. Readers may also want to take a look at this Seeking Alpha article for its in-depth analysis of HPQ as well as IBM, DELL, and Xerox (XRX). Even more differentiation between HPQ and DELL can be found here.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.