By Larry Gellar
On a day that at first looked like it would be a bloodbath, important ETFs such as the DIA (DIA) and SPY (SPY) finished down less than 1% Tuesday. Let’s take a look at 5 stocks that saw especially heavy volume:
Temple-Inland Inc. (TIN) was up nearly 25% on Tuesday, as International Paper (IP) increased its bid for the company to $32 per share. Temple-Inland agreed to the deal, which comes after the company rejected previous offers for lower amounts. Considering recent events, though, many shareholders were happy that a deal was finally made.
Specifically, Temple-Inland may have been involved in the failure of a bank called Guaranty Financial. Additionally, a Temple-Inland mill in Lousiana was closed down after it was revealed that numerous fish were killed by the plant’s operations. Temple-Inland was even involved in a lawsuit on the part of its shareholders. That litigation claimed Temple-Inland’s handling of bids from International Paper was “selfish,” amongst other things. Other important companies in the paper industry include Packaging Corp. of America (PKG) and Rock-Tenn (RKT), both of which have higher gross margins and higher operating margins than Temple-Inland. At the same time, their price-to-earnings ratios and price/earnings to growth ratios are cheaper than TIN. Price to sales are somewhat high for both of these companies, though, at 0.96. As for cash flows, $8 million left TIN in 2010, and $15 million came in for the first half of 2011.
Alcatel-Lucent (ALU) was down nearly 7% on Tuesday, and the big news is that the company’s attempt to sell off its enterprise unit probably will not work out. Permira would’ve been the buyer in such a deal, although there is now speculation that Aspect Software might be interested. Shareholders certainly hope so, as a stronger focus on its business as a service provider would definitely send ALU stock higher. Note that the last year ALU recorded a profit was 2005, although income for the most recent twelve months has been $564.12 million. In fact, ALU’s price-to-earnings ratio and price/earnings to growth ratio are both higher than other communication hardware companies like Cisco Systems (CSCO) and LM Ericsson Telephone (ERIC). Price to sales for ALU is quite low, though – only 0.34. This can perhaps be explained by weak margins – gross margin is 35.52% and operating margin is 4.18%. Quarterly revenue growth (year over year) is only 2.4%. As for cash flows, 1.463 billion euros came in for 2010, while 1.566 billion euros flowed out for the first half of 2011. Note that this company’s bigger focus on Europe makes it quite sensitive to trends over there. A beta of 2.55 also makes this stock volatile.
Regions Financial Corp. (RF) was down nearly 6% in Tuesday’s regular trading hours, but bounced back a bit after the close. Despite the fact that the company is not named in a lawsuit from the Federal Housing Finance Agency, the industry’s downward trend is definitely bringing this bank down with it. On the other hand, recent insider buying and participation in Barclays’ 2011 Global Financial Services Conference help make this stock look more attractive. There are more trends that make RF a possible buy right now. First, Regions is starting to see strong growth again despite an environment of low interest rates and loan write-downs. Regions also recently won a lawsuit in which the plaintiff claimed the company mishandled the balance sheet aftermath of acquiring AmSouth Bancorp. Due to negative trailing twelve-month income of $101 million, RF doesn’t have a price-to-earnings ratio right now, although price to sales is somewhat low at 1.12. Competitors like Bank of America (BAC), BB&T (BBT), and SunTrust (STI) have price to sales ratios of 1.03, 2.15, and 1.40 respectively. Operating margin for RF is extremely low, though – 0.17%. Additionally, cash flows have been mixed with $1.092 billion leaving the company in 2010 and $1.055 billion coming in for the first half of 2011.
EMC Corporation (EMC) was essentially flat on Tuesday. The big talk in the storage industry lately has been flash technology. Compared to the disk drives of old, flash is faster and requires less space, which means companies like EMC are hustling to figure out how to take advantage of this market. Choices for the storage company include quickly developing its own flash technology or making an acquisition to become a player in that arena. Note that only some of EMC’s current products use flash, as opposed to smaller companies that offer all-flash hardware. EMC has also been active in working with VMware (VMW), and EMC’s products are doing extremely well when combined with the software VMW offers. The performance of EMC’s hardware in the vSphere 5 environment is astounding. EMC’s big competitors include Hewlett-Packard (HPQ) and IBM, and those companies offer lower price to earnings and lower price to sales (especially HPQ). Price/earnings to growth for EMC is about average for the industry, as is the company’s operating margin. Gross margin is quite strong at 59.82%. Cash flows haven’t been as rosy: $2.183 billion flowed out of the company in 2010 and $222.77 million flowed out of the company in the first half of 2011.
Morgan Stanley (MS) was down over 3% Tuesday, and investors are still calculating what the lawsuit from the Federal Housing Finance Agency will do to the company. As discussed here, the company’s recent earnings report was better than expected. This still amounted to a loss, although Morgan Stanley turned a profit in the previous 7 quarters. Conversion of preferred stock by Mitsubishi UFJ Financial (MTU) had a tremendous impact on Morgan Stanley’s earnings. In fact, without that conversion the company would’ve actually earned 64 cents per share from continuing operations. All of the company’s divisions are doing pretty well, although rising costs are starting to take a toll. Some investors are also questioning whether the company has enough capital. As for value metrics, Morgan Stanley’s price to earnings is 57.85, while biggest competitor Goldman Sachs (GS) has a price-to-earnings ratio of 10.25. Price/earnings to growth ratios for the two companies are the same, although Morgan Stanley boasts a cheaper price-to-sales ratio. Gross margin for MS is quite strong at 95.14%, and operating margin of 23.48% is decent. Additionally, cash flows have been strong, with $15.624 billion coming in for 2010 $3.132 billion coming in for the first half of 2011.