by Larry Gellar
The market was down over 2% on Friday due to yet another poor jobs report. In fact, we’ve found 5 stocks that saw an especially high amount of trading. Let’s see what specifically moved these stocks lower:
Wells Fargo & Company (WFC) – One of the few big banks not being sued by the Federal Housing Finance Agency, WFC stock was down over 4% on Friday regardless. Wells has also been in the news for its redemption of some Trust Preferred securities. This move will help improve WFC’s balance sheet, and we like it. Analysts agree, with Stifel Nicolaus being one firm that has WFC at a buy rating right now. In fact, Stifel Nicolaus is predicting that the redemption could increase WFC’s EPS by 6 cents.
Wells Fargo has also been affected by the recent increase in refinancing due to low interest rates. Although this increase in demand has provided some challenges for the bank, WFC appears well-equipped to deal with them. As for value metrics, the stock is trading at a bit of a premium now compared to Citigroup (C) and JPMorgan Chase (JPM). WFC’s price to earnings is 9.38, compared to 8.78 and 7.39 for those other companies respectively. Operating margin and price/earnings to growth are both about average, while price to sales is somewhat higher than the competition. From a cash flow perspective, $11.036 billion flowed out of the company for 2010, while $8.015 billion flowed in for the first half of 2011.
Intel Corp. (INTC) was down nearly 2% on Friday, and one factor was news that semiconductor sales didn’t improve between June and July. Concerns about Intel’s intangible assets ratio have also been raised, although this statistic may not be particularly meaningful. If nothing else, this ratio is somewhat higher than competitors like Advanced Micro Devices (AMD), ON Semiconductor (ONNN), and Texas Instruments (TXN). On the other hand, there are still plenty of INTC bulls, who note the company’s cheap forward price to earnings ratio as well as favorable price targets from analysts. In fact, one analyst has the stock going to $32.
We think semiconductor sales will improve as the year goes on, which means INTC stock price should appreciate accordingly. A dividend yield of 4.2% is also pretty nice. With a price/earnings to growth ratio of 0.76, the stock is pretty cheap, although price to sales at 2.17 is admittedly high. Strong margins of 33.55% (operating) and 63% (gross) help justify this. Additionally, quarterly revenue growth year over year is 21.1%. For the year 2010, Intel brought in $1.511 billion, but $863 million has streamed out during the first half of 2011. This can be attributed to an aggressive stock buyback program, however.
Oracle Corp. (ORCL) was down over 3% on Friday, although it did bounce back a bit in after-hours trading. The company recently received recognition for the services it provides to utilities. Specifically, a press release from Oracle states, “Oracle Utilities Network Management System 1.11 offers new modeling and analysis features to improve distribution-grid management for electric utilities.” Not all the news for ORCL is good though, as a lawsuit that previously awarded the company $1.3 billion from SAP is now being reduced to $272 million. Oracle has also been involved in a heated debate with Hewlett-Packard (HPQ). HPQ is suing ORCL for a breach of contract regarding INTC’s Itanium chip, and ORCL believes it was tricked into an agreement involving its employment of ex-HPQ CEO Mark Hurd. Price/earnings to growth for ORCL is low at 0.77, but price to sales is high at 3.96. Gross margin, operating margin, quarterly revenue growth, and price to earnings are all about average. As for cash flows, the company has brought in $6.249 billion for the 12 months ending May 31st. High amounts of cash from operating activities played a big role in this. Some investors will also want to take note that dividend yield is currently 0.9%.
Petroleo Brasileiro (PBR) fell over 4% on Friday, and this stock was affected not only by the U.S.’s poor jobs report, but also low growth in Brazil itself. Additionally, the Brazilian real was hurt by that country’s decision to lower interest rates. On the other hand, Petrobras could also have a more fundamental problem – the reduced supply of oil in South America. As an extractor, finding oil is crucial to this company’s profits. There are also plenty of bulls for PBR though, as discussed here. That article mentions recent oil discoveries that shareholders hope the company can keep up. On the other hand, rising costs, questionable profitability, and even interference from the Brazilian government could hurt this stock.
Another interesting piece of information is recent news that Petrobas will increase investment. This new spending will improve airport business and production of lubricants as well as increase the amount of service stations that the company runs. Even some of Brazil’s economic data is pretty good. That article notes the country’s recent drop in unemployment and increase in real incomes. Note that PBR’s price to earnings and price to sales are a bit higher than BP’s, but this is probably due to the company’s stronger margins.
Micron Technology (MU) was down over 4% in Friday’s regular trading hours but saw a nice boost after that. Regardless, concerns about declining prices for NAND and DRAM remain. And while decreased PC sales due to the iPad (and other factors) are hurting Micron, the company still provides a good deal of chips for corporate solutions. More information about the DRAM situation can be found here. That article points out the expenses required to make DRAM can be outlandish, and Micron is one of the few companies that make the memory that’s turning a profit right now.
Micron is also involved in a lawsuit with Rambus (RMBS), and the gory details can be read here. In fact, Micron and Hynix could lose up to $12 billion, although this seems unlikely. Note that Micron’s value metrics seem pretty reasonable right now – price to earnings is 8.7, price/earnings to growth is 1.67, and price to sales is 0.63. Margins are also about average – gross margin is 24.26% and operating margin is 12.82%. On the other hand, quarterly revenue growth year over year is -6.5%. As for cash flows, MU brought in $1.428 billion for fiscal year 2010 but has seen $518 million stream out since then.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.