By Larry Gellar
The market was down over 1% on Thursday, and the big news was regulatory action being taken against Goldman Sachs (GS). On the other hand, many of Thursday’s most heavily traded stocks had nothing to do with banking at all. Let’s take a look what affected these 5 non-financials:
Cisco Systems, Inc. (CSCO) – Cisco was actually up on Thursday, as fellow networking company Ciena (CIEN) reported a profit (excluding one-item items) amidst analyst expectations of a loss. Unlike Ciena, Cisco is of course a more established company that currently offers a dividend yield of 1.5%. That doesn’t mean everyone likes the stock right now though, and many options traders are getting as many puts as they can. On the other hand, strong growth and a nice price to free cash flow ratio are strong fundamentals worth considering. Cisco also recently purchased Versly, and this is an addition that suits Cisco well. Versly essentially offers addons for Microsoft Office, which goes well with Cisco’s own offerings. From a margins perspective, Cisco’s operating margin of 20.04% is currently better than competitors like Alcatel-Lucent (ALU), Hewlett-Packard (HPQ), and Juniper Networks (JNPR). Other statistics like gross margin, price to earnings, price/earnings to growth, and price to sales put Cisco at about the middle of the pack. Recent cash flows are also worth taking a look at. In fact, the company has brought in $3.081 billion for the 52 weeks ending July 30th. That includes $5.065 billion used to buy back stock. Not too bad for a company that many investors believe is in need of serious restructuring.
Ford Motor Company (F) – Ford stock was down over 2% on Thursday due to economic concerns, although the company’s sales have been impressive lately. In fact, one of Ford’s VPs Ken Czubay said, “Ford's fuel-efficient cars, crossovers and trucks continue winning over customers in the marketplace … Our new product lineup — especially our newest cars — continues helping Ford grow even stronger and gain market share on the fiercely competitive East and West coasts.” Other writers on Seeking Alpha are pretty bullish too. That article notes the company’s fuel-efficient cars are quite popular at a time when consumer confidence is staggeringly low. Using value metrics like price to earnings, price/earnings to growth, and price to sales, Ford is slightly more expensive than General Motors (GM), but not nearly as expensive as Toyota (TM). (Toyota is actually trading at 78.12 times earnings right now). Ford’s operating margin and gross margin are also better than both of those other companies. As for cash flows, Ford is up $2.667 billion for the first half of 2011. This is a substantial turnaround from 2010 when $6.089 billion flowed out of the company, although that was mostly due to significant paying down of debt. Note that with a beta of 2.36 this stock could be volatile going forward.
Sirius XM Radio Inc. (SIRI) – Sirius XM was down on Thursday, and the company is actually involved in a host of lawsuits right now. Two of these lawsuits are actually quite similar, both involving the possibility that the company did not put shareholders first during its merger as well as the deal it made with John Malone. One lawsuit was dismissed, probably because its type requires the plaintiff to be a shareholder. The second lawsuit will continue though, and shareholders anxiously await the possibility that Malone will have to give some money back. A third lawsuit is also in play, this one accusing the company of lying about how much its Family Friendly plan costs. With a beta of 2.27, SIRI is already a pretty volatile stock, and this litigation could make the stock’s swings even wilder. As for Sirius’s actual business operations, a great perspective from one consumer can be found here. That article points out that while the company’s exclusive content is pretty strong, there are still a number of alternatives including Pandora (P), Slacker, MOG, Spotify, iTunes, and even local radio. Sirius XM’s monopoly on satellite radio may not be as powerful as initially thought. Perhaps the toughest part of investing in SIRI is the 42.93 price to earnings ratio. This is offset somewhat by a 0.90 price/earnings to growth ratio, however.
General Electric Company (GE) – This stock got a lot of play on Thursday, but it was only down by 0.8% including after hours trading. With a beta of 1.86, this stock is not as market-sensitive as some others we’ve discussed, but economic concerns are still an important factor for its share price. Mixed sentiment for the company can be found in this article. With the stock trading for the same price it did in 1996, there’s certainly reason to believe that it should be undervalued at this point. Additionally, the company’s energy and aviation divisions are expected to do well. On the other hand, GE’s competition is quite strong, and some investors fear the company may be becoming too bloated. GE’s closest competitor is probably Siemens (SI), and that company offers somewhat lower price/earnings to growth and price to sales. GE boasts a cheaper price to earnings ratio though as well as better margins. Operating margin for GE is 11.47% and gross margin is 36.32%. Cash flows for GE have also been extremely strong, with $6.64 billion coming in for 2010 and $12.128 billion coming in for the first half of 2011. Additionally, the company has done a terrific job of paying down debt. Dividend investors will especially like this stock – dividend yield is currently 3.7%.
Microsoft Corporation (MSFT) – Microsoft was down over 1% on Thursday, and the company is now facing a lawsuit that claims Windows Phones record user locations even after the option is turned off. At the same time though, market share for the Windows Phone is doing quite well. HTC is one manufacturer that has been quick to put out hardware for the mobile operating system, and Microsoft also has deals with Nokia (NOK), Acer, Fujitsu (FJTSY.PK), and ZTE (ZTCOF.PK). Hewlett-Packard’s decision to discontinue its WebOS operating system should also help Microsoft. Additionally, some investors are expecting a dividend increase – note that dividend yield right now is 2.4%. Problems with the company’s Windows PC operating system remain though, as discussed here. In fact, the loss of mind share to Apple’s (AAPL) Mac OS has been staggering. That could be one reason Microsoft’s price to earnings ratio is below 10, much lower than other players in the software industry like Oracle (ORCL), Google (GOOG), and Apple (AAPL). At 0.93 though, Microsoft’s price/earnings to growth ratio is higher than all of these companies. It’s also worth mentioning Microsoft’s margins – both gross margin and operating margin are quite strong at 77.73% and 39.31% respectively. As for cash flows, $4.105 billion has come in for the 12 months ending June 30th.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.