By Ann McQueen
We have identified five stocks that have been making waves in the headlines over the past weeks. Here we consider their value:
Bank of America Corporation (BAC) has taken a beating in the headlines. In July, analysts cut earnings estimates for the banking giant. News of a federal investigation into BAC’s failure to disclose a suit filed by American International Group (AIG) alleging it misrepresented risks inherent in mortgage-backed securities it sold hit the streets at the end of August. In early September, the federal government filed a lawsuit against BAC and 16 other banks, and claims against BAC in particular were the highest, at $57.5 billion, for securities it sold to Fannie Mae and Freddie Mac.
The bank has shuffled its management. It is in the process of selling off units not necessary to its core business in order to improve its balance sheet. It has announced layoffs. Rumors of BAC spinning off Merrill Lynch abounded earlier this month after federal banking regulators questioned the bank’s reserves. Fears of Europe’s sovereign debt crisis linger, sending more investors fleeing for safer havens and driving stock prices even lower.
BAC is currently trading around $7 a share, which is close to the bottom of its 52-week range of $6.01 to $15.31. Its forward annual dividend yield is 0.60 percent, or $0.04 a share. BAC has a long history of paying a dividend; however it has paid only $0.01 quarterly since the period ended March 4, 2009. It is showing a loss per share of $1.64.
Its competitor Citigroup Inc. (C) has also taken a beating in the headlines, as have most large cap banks, but it seems to be maintaining a better bottom line. It is trading around $27 a share, which is closer to its 52-week low of $25.40 than to its high of $51.50. Its dividend yield is 0.10 percent, or $0.04 per share. Its dividend history, though long, is less consistent than BAC. It has paid two dividends of $0.01 each so far this calendar year. Prior to this, the most recent dividend payment was $0.10 on Jan. 29, 2009. Quarterly payments were much more consistent in the years leading up to the financial and housing market crises. C is showing earnings per share of $3.24 and a price-to-earnings ratio of 8.41.
BAC is showing a decline in quarterly revenue of 52.60 percent, whereas C is showing growth in quarterly revenue of 12.2 percent.
In light of the toll the bad news has taken on BAC’s share price, it may be a good time to bargain-shop. Its price-to-book value is 0.34, which compares to C’s 0.45. Third-quarter financial statements will be released Oct. 18.
SIRIUS XM Radio Inc. (SIRI) – Recessionary pressure and increased competition left investors concerned about the outlook for this mid cap provider of satellite radio, but second-quarter profits released in August were up, thanks to record-setting numbers of subscribers and lower costs of service. SIRI expects the trend to continue into next year, projecting double-digit increases in revenue growth. Last week, the company announced that it is raising rates for the first time since launching its service in 2002. Speculation has circulated that the time may be nearing for an acquisition.
SIRI is currently trading around $1.70. Over the past year, it reached a low of $1.10 and a high of $2.44. Earnings per share is $0.04, and its price-to-earnings ratio is high at 43.66. It does not pay a dividend.
SIRI competitor Pandora (P) has caught the eyes of analysts, with five “Strong Buy” recommendations and two “Buys” for the current month. Three issue a “Hold” recommendation, and only one recommends selling.
P is trading around $10.50 a share. It has ranged in price from $0.33 to $26.00 over the past 52 weeks. It shows a loss per share of $0.59. No price-to-earnings ratio is available.
SIRI’s price to book value of 13.7 is lower than P’s 16.17. SIRI reported quarterly revenue growth of 6.4 percent, whereas P reported a whopping 117.2 percent quarterly revenue growth.
SIRI appears to be the choice for more conservative investors who maintain a level of comfort with some risk. Share price is low. P has shown much more drastic price fluctuations and a marked spike in growth. The opportunity for gains is very real; however risk and return are inextricably linked. P is more suitable for investors with higher tolerance and timelines for risk.
Yahoo Inc. (YHOO) – This large cap digital media company has entered into a deal with Microsoft Corporation (MSFT) and AOL Inc. (AOL) by which the companies will sell each other’s online display ads. Other news focuses on management decisions and investor unrest. In the wake of the firing of former CEO Carol Bartz, investor Daniel Loeb, whose hedge fund Third Point LLC owns a 5.2 percent stake in YHOO, threatened a proxy war and a new slate of directors if the current board continues on its course. Officer/insider David Filo recently sold 166,500 shares for $2.42 million.
Shares are trading around $14.30, which is near the middle of the 52-week range of $11.09 to $18.84. Earnings per share is $0.88, and price-to-earnings ratio is 16.28. Revenue decreased 24 percent for the six months ended June 30, 2011, compared to the same period in 2010. Revenue from the sale of display ads was up slightly, but search revenue decreased. Its current price to book value is 1.44.
Its competitor Google Inc., which boasts an enormous market capitalization of $176.5 billion, is trading around $546.63. AOL Inc., a competitor with market capitalization of $1.49 billion, is currently trading just under $14. Prices over the past year have ranged from $10.06 to $27.65. AOL’s earnings per share is $2.16, and its price-to-earnings ratio is 6.45. It is also showing a loss in quarterly revenue of 8.4 percent, which is not as steep as YHOO’s. Its price to book value is 0.64.
YHOO is definitely a company in turmoil. We believe investor unrest will continue, at least until its annual meeting the middle of next summer. The partnership with MSFT and AOL has the potential to boost its bottom line. We are neutral on this stock for investors with little risk tolerance; investors with established portfolios and longer timelines may find it suitably priced.
General Electric Co. (GE) – This large cap diversified energy, medical technology and finance company saw heavy trading yesterday after it announced to analysts and investors that it expects revenue from its energy unit to increase to $60 billion by 2014 and, within a decade, to $100 billion. This compares to $45 billion expected for this year and $37.5 billion for last year, according to The Wall Street Journal. In the first half of the year, energy profits have fallen 14 percent when revenue grew 9 percent. Declining profit margins in its energy unit are expected to stabilize this year after dropping by 19 percent from last year. GE attributes these troubles to decreasing demand for wind-energy equipment as well as to the process of integrating the past year’s $11 billion in acquisitions.
Other announcements fare well for the company. It disclosed over $3 billion in customer agreements, with commitments abroad in Australia, Brazil, Egypt, Iraq and others. It announced a week ago $1 billion in orders for natural gas-powered generators.
Down about 12 percent this year, GE is currently trading around $16 a share. Its price has ranged from $14.72 to $21.65 over the past 52 weeks. Its dividend yield is 3.7 percent or $0.60 a share. GE has consistently paid dividends for decades. For the last two quarters, it has paid $0.15, which is up from $0.14 for the two quarters prior. Earnings per share is $1.27, and its price-to-earnings ratio is 12.62. Its price-to-book value is 1.33.
GE will survive the pounding it has taken this year. It remains a solid foundation stock for long-term investors and appears to be available at somewhat of a bargain. We like its dividend payment history, and it is poised to grow as general market conditions improve.
Sprint Nextel Corp. (S) filed an anti-trust lawsuit against competitor AT&T (T) for its offer to purchase T-Mobile USA a day after the U.S. Department of Justice filed one. Announcements of new fall products are imminent, and S customers are expected to get new iPhone 5 devices from Apple Inc. (AAPL) while T-Mobile customers must wait until next year. S is also launching the new Google Wallet application for Nexus S 4G customers, allowing users to pay for merchandise from select retailers with their cell phones.
S, which is trading around $3.30, is off about 19 percent so far this year. It is showing a loss per share of $1.05. Competitor T is trading around $28.85. It offers a dividend yield of 5.9 percent or $1.72. Earnings per share is $3.44, and price-to-earnings ratio is 8.40. S’s price-to-book value is 0.75, and T’s is 1.5.
S appears to be trading at a value, but it carries risk. It is appropriate for investors whose portfolios are shored up with foundation stocks and mutual funds to consider adding S, but T is a more suitable stock for conservative investors and, in particular, those who are seeking dividend income.