by Larry Gellar
Once the debt crisis in Europe is cleaned up, ETFs like PowerShares QQQ (QQQ) and SPDR S&P 500 (SPY) will see impressive gains. On the other hand, we’ve identified 5 stocks that look ready to beat the market. These companies work in a variety of industries ranging from banking to software:
Avago Technologies Limited (AVGO) has been up and down lately, and the latest news is that some current shareholders are going to be selling shares to Deutsche Bank (DB) and Citigroup (C). That has some investors worried, but this company remains extremely innovative. Here’s what James Wilson, director of marketing for wireless products, had to say about one new module the company is coming out with:
“With BTS manufacturers faced with the challenges of shortened design cycle time and board space constraints, our new VGA module addresses the need for an easy-to-use, compact solution that offers robust and reliable RF performance.”
Investors may also be interested to know that this stock is trading ex-dividend. In fact, shareholders of record on September 19th will receive a dividend of 11 cents on September 30th. Important competitors for Avago Technologies include Analog Devices (ADI), Finisar (FNSR), and RF Micro Devices (RFMD). Ratios like price to earnings and price/earnings to growth put Avago in the middle of those companies, although price to sales ratio for Avago is quite high at 3.71. As for margins, Avago is about average in that regard – gross margin is 51.42% and operating margin is 25.08%. This stock’s beta is 0.97.
Morgan Stanley (MS) stock has been declining, although the company just made a bold move in the New York real estate market. Specifically, Morgan Stanley’s real estate division has agreed to purchase a rather large building in Manhattan. Also of interest are Morgan Stanley’s efforts to recognize Hispanic Heritage Month. The company is reaching out to Latino business owners, and here’s what one of Morgan’s Stanley managing directors had to say:
“The discussion of succession planning for family business owners is very important and we are delighted to be working together with New America Alliance to have this dialogue with Latino entrepreneurs in the greater Los Angeles area.”
Morgan Stanley’s biggest competitor is Goldman Sachs (GS), and that investment bank has had a number of setbacks lately. In fact, it is now trading at less than a fifth of the price to earnings ratio that Morgan Stanley does. Goldman Sachs also has a significantly higher operating margin. Price/earnings to growth ratio and price to sales ratio are both a bit higher for Goldman Sachs though. One trend that’s going to affect both of these banks going forward is the significantly decreased profitability that Wall Street is seeing. Part of this will be coming out of traders’ and bankers’ bonuses, although the industry has certainly changed.
Macy’s, Inc. (M) stock has been rapidly rising, and the latest news is that the company will begin using radio frequency identification technology to keep track of inventory for its stores. Here’s what chief administrative officer Tom Cole had to say:
“RFID will allow us to more frequently count item-level inventory with precision so our inventory is readily accessible to our customers. This is technology that has proven effective in our testing, and we believe now is the right time to roll out RFID aggressively.”
Another important piece of news for Macy’s is the announcement that it will add 78,000 temporary workers for the holiday season. These workers will mostly be at distribution centers or receiving inventory at the stores themselves. Needless to say, this headline has investors excited not just for Macy’s, but the retail sector as a whole. Important competitors for Macy’s include Dillard’s (DDS) and Saks (SKS). M is the cheapest of those stocks using price to earnings but the most expensive using price/earnings to growth. Meanwhile, Macy’s has the best gross margin (40.61%) and operating margin (8.48%). As for analyst news, Deutsche Bank recently rated this stock a buy and gave it a price target of $34.
Like Morgan Stanley, JPMorgan Chase & Co. (JPM) got hit hard lately. Besides the turmoil in Europe, not much has affected JPMorgan Chase in particular, however. One piece of news is that the company may be looking to add jobs in Florida, Ohio, and Texas, specifically in its home lending unit. The final decision will be contingent on any support it can receive from those states, however. JPMorgan Chase is also working on getting its lawsuit against Lehman Brothers going again. The lawsuit was initially stopped from gaining ground due to the limits of bankruptcy, although JPMorgan Chase is contending that the lawsuit goes far beyond mere bankruptcy. Important competitors for JPMorgan Chase include Bank of America (BAC), Barclays (BCS), and Citigroup (C). Those stocks have higher price to earnings ratios, with the exception of Bank of America, which currently has negative trailing twelve-month earnings. Investors are willing to pay a premium for this best of breed stock. Operating margin is quite strong at 39.91%. As for cash flows, the company brought in $1.361 billion during 2010 and $2.899 billion during the first half of 2011.
Oracle Corp. (ORCL) stock has been about flat lately, although this company just put the smackdown on Autonomy CEO Mike Lynch. Autonomy was recently bought by Hewlett-Packard (HPQ), and Mike Lynch claimed that his company was never “shopped” to Oracle. Oracle responded in kind with this statement:
“The slides Lynch showed Oracle's Mark Hurd and Doug Kehring were all about Autonomy's financial results, Autonomy's stock price history, Autonomy's Price/Earnings history and Autonomy's stock market valuation. Ably assisting Mike Lynch's attempt to sell Autonomy to Oracle was Silicon Valley's most famous shopper/seller of companies, the legendary investment banker Frank Quattrone.”
The debacle doesn’t stop there, as Oracle has even posted Lynch’s slide shows on its web site. Needless to say, this is rather embarrassing for HP, which may be inheriting a complete dud. In other news, Oracle is releasing new servers to compete with IBM (IBM). This is part of Oracle’s plan to offer more integrated solutions and was a pivotal reason why it bought Sun Microsystems last year. Additionally, while Oracle turned down Autonomy due to its high price, the company may be interested in buying other small software makers. This company is clearly on the prowl for acquisitions. Investors may also be interested to know that this stock has a beta of 1.09.