By Larry Gellar
The stocks listed have higher betas than their industry average, allowing investors to capture more of the upswing in what I expect to be a bullish fall season. Each of these companies is a leader in its field and each has a recent catalyst that investors have not recognized. These catalysts range from PulteGroup's (PHM) CEO being named chairman-elect to the powerful Mortgage Banker's Association (MBA) to TE Connectivity Ltd. (TEL) being the latest addition to the S&P 500 Index. Investors who pay attention to these details could reap handsome profits. As always, please use the analysis below as a starting point for your own due diligence:
PulteGroup, Inc. (PHM) has been somewhat volatile lately, although Barclays just awarded it an Overweight rating. Meanwhile, the President and CEO of Pulte Mortgage Debra W. Still has just been named chairman-elect of the MBA. Here’s what PulteGroup CEO Richard J. Dugas, Jr. had to say:
Given her technical expertise and the high-standards she sets for herself as well as those surrounding her, Deb is well-suited to help guide the MBA and address major issues facing the mortgage industry today.
Other interesting news in the mortgage industry has centered on interest rates. In fact, 30-year mortgage rates have hit yet another low, as demand for housing in the U.S. remains weak. Important competitors for PulteGroup include DR Horton (DHI), KB Home (KBH), and Lennar (LEN). PulteGroup and KB Home have been unprofitable as of late, and DR Horton is barely squeaking by at an earnings per share of 0.01. Price to sales ratio for PulteGroup is quite low at 0.42, although operating margin is pretty weak at -9.03%. Cash flows haven’t been so hot either - $387 million flowed out during 2010 and $395 million flowed out during the first half of 2011. Debt payments and low amounts of cash from operating activities have played a large role in that.
TE Connectivity Ltd. (TEL) got quite a boost recently, as the company will be replacing Cephalon (CEPH) in the S&P 500. (Cephalon is being bought by Teva Pharmaceuticals (TEVA).) For those that don’t know, TE Connectivity is a Switzerland-based company that makes electronics, specifically communications equipment. It offers a dividend yield of 2.9% and has a beta of 2.08. Those dividends were just increased actually, and further authorization to repurchase shares has also been given. TE Connectivity will also be a supplier for the Drive for Innovation, which should also help the company get some good PR.
Here’s what one of the company’s top execs had to say about TE Connectivity’s contributions:
Providing transportation solutions such as electronic components that power electric vehicles is a core part of TE's business – as well as application tooling and custom engineered solutions for the automotive, aerospace, defense and marine industries.
Important competitors for TE Connectivity include Alcatel-Lucent (ALU), Corning (GLW), and Molex (MOLX). TE Connectivity is a bit expensive compared to electronics makers using ratios like price to earnings, price/earnings to growth, and price to sales. Its margins are pretty good though, with gross margin at 31.19% and operating margin at 13.64%. Quarterly revenue growth of 20.90% is also impressive.
Schlumberger Limited (SLB) has been holding steady as of late, although investors are eagerly looking forward to the October 17th earnings report. While a declining price for oil as well as numerous macroeconomic factors has hurt this stock, there’s still reason to believe it’ll turn around. In fact, the company’s production and exploration operations are doing better than ever. Schlumberger’s number of rigs continues to grow, and interest in shale gas is growing stronger. That’s important for Schlumberger because shale gas may be the company’s strongest aspect. Schlumberger’s biggest competitors include Baker Hughes (BHI), Halliburton (HAL), and Weatherford (WFT). Schlumberger has the highest price to sales ratio out of those stocks, although price to earnings and price/earnings to growth are closer to average. Margins too are about average – gross margin is 21.22% and operating margin is 16.1%.
For an in-depth look at Schlumberger’s margins, consider taking a look at this article. The conclusion reached there is that Schlumberger may not be a great pick because its operating margin has historically been better, but this should not be seen as a huge factor. As for cash flows, $1.147 billion flowed in during 2010 while $386 million flowed out in the 6 months after that. Recent outflows have been largely caused by capital expenditures, however.
Xerox Corp. (XRX) has been a bit volatile lately, although shareholders hope that the recently announced dividend will calm the waters. Those holding the stock on December 30th will receive a dividend of 4.25 cents per share on January 31st. Xerox is also having success with its ACS subsidiary. In fact, ACS will be doing some major work for the Department of Veteran Affairs.
Here’s what ACS chief operating officer had to say:
The VA has the honorable mission of providing important benefits to veterans. Our role is to provide services and technology that simplify and speed up access to these benefits.
Essentially, ACS will be converting the Department of Veteran Affairs’ system into a paperless one. Xerox is also working with a variety of financial services firms to help make their operations more electronic. In fact, Xerox’s acquisition of Symcor was primarily motivated by that firm’s success with the financial industry. Important competitors for Xerox include Canon (CAJ), Hewlett-Packard (HPQ), and Ricoh. Xerox falls in the middle of those companies for price to earnings and price to sales ratios, although price/earnings to growth for Xerox is quite low. Margins are about average – those numbers are 33.4% gross and 8.26% operating.
Taiwan Semiconductor Manufacturing Co. Ltd. (TSM) has had some volatility lately, although many investors think this could be a great iPhone play. There has been quite a bit of speculation about which chips TSM is providing to Apple (AAPL) and other companies involved in iPhone production. On the other hand, revenue at TSM has been hurting a bit. The company reported that both consolidated and unconsolidated sales were down significantly in September. Bad months happen sometimes though, and there’s certainly reason to believe that the fourth quarter will prove better for TSM. In fact, Spreadtrum Communications (SPRD) is putting in more orders for chips with TSM. These are crucial for phones that use China Mobile’s (CHL) 3G network, which is rapidly expanding.
TSM is also part of a new plan to expand semiconductor facilities in New York. Important competitors for TSM include Semiconductor Manufacturing International (SMI) and United Microelectronics (UMC). Price/earnings to growth and price to sales are pretty high for TSM, although price to earnings ratio is closer to average. Additionally, margins are quite strong – gross margin is 48.71% and operating margin is 36.87%. As for cash flows, 23.4 billion Taiwanese dollars flowed out in 2010 and 3.092 billion Taiwanese dollars flowed in during the first half of 2011.