In this article, we will discuss the following S&P 500 stocks: PulteGroup, Inc. (PHM), Tellabs Inc. (TLAB), MEMC Electronic Materials Inc. (WFR), Southwest Airlines Co. (LUV), Monster Worldwide, Inc. (MWW) and Advanced Micro Devices, Inc. (AMD).
The stocks covered are S&P 500 (SPY) stocks with share prices of ten or less, 2012 projected EPS growth rates of greater than 30% and are trading on average down nearly 40% year to date. These stocks are speculative contrarian plays that have major upside potential once the geopolitical and macroeconomic issues of the eurzone get resolved and the fear factor wanes.
Compelling Fundamental Statistics
Exceptional Projected EPS Growth Of Greater Than 30%
A company's earnings per share is conceivably the most important statistic to understand before investing in a stock. Each time you consider starting a position in a stock, you should prudently scrutinize its earnings information. The reason earnings are so vital to investors is that they tell you about the relative profitability of a company. Earnings per share is defined as the net income of a company divided by the shares of common stock outstanding. With the EPS measure, you are looking at the amount of money left over for shareholders. The value is reported after taxes are subtracted, and we are normalizing those profits by stating them on a per-share basis.
When a company is profitable, and has money to give back to shareholders in the form of earnings, the company has two basic options: First, it can distribute some of the earnings in the form of a stock dividend. Factor this in with the fact that historically, dividend-paying stocks have outperformed non-dividend-paying stocks, and you have a recipe for outstanding returns. After the precipitous drop in the Dow in 2008, the high-dividend-payers were the first to recover. Whatever is not paid out in the form of dividends is placed into the retained earnings, which then become a source of capital that can be used to help support the growth of a company.
Significant Underperformance Could Lead To A Reversion To The Mean
I believe we are nearing the end of the eurozone crisis. Many stocks look really cheap and have dropped over 10%. These seven S&P 500 stocks have dropped by nearly 42% on average year-to-date, and are primed to rebound due to a reversion to the mean, if nothing else.
The mean reversion strategy is based on the mathematical premise that all prices will eventually move back toward the mean, or average, return. Thus, if a stock is underperforming, its price will move toward its average value when the market rebounds. Many of these stocks have been taken down in sympathy with the global market sell-off or due to headline risk. Stock market correlation is at an all-time high, but when the market recovers, I expect these stocks to experience a significant rebound.
Moreover, most of these stocks are trading well below consensus analysts' estimates, have recent upgrades, positive analyst comments and some pay dividends. Below are three tables with detailed statistics regarding each company's current summary fundamental and performance information.
Company Summary Statistics
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Company Fundamental Statistics
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Company Performance Statistics
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(Charts provided by Finviz.com)
Possible Catalysts/Recent News
PulteGroup, Inc. – PulteGroup, which continues to invest in available finished lots in key areas, announces its third new-home community acquisition in Southern California in the past three months. In the most recent acquisition, Pulte Homes is scheduled to close escrow this month on Torrey Highlands, a 44-unit community located in the City of San Diego in the Carmel Valley area. In August, Pulte Homes closed on 18 infill units in Los Angeles and in September purchased 26 lots in the City of Vista. (read more here)
Tellabs Inc. – Mobile operators are missing a clear opportunity to double cash returns by following current network strategies. This finding comes from a new report entitled “The value of ‘smart’ pipes to mobile network operators”, commissioned by Tellabs and undertaken by STL Partners. Cash returns on invested capital for mobile operators today are typically 5.8%, in line with utility company stocks. The report concludes that mobile operators can more than double cash returns to 13.3% by delivering smart services. Smart services can improve operators’ share value and performance, turning today’s value stocks into tomorrow’s growth stocks. (Read more here)
MEMC Electronic Materials Inc. – Northland Power Inc. recently announced that it has signed a Master Module Supply Agreement with MEMC Singapore Pte. Ltd, an affiliate of MEMC to purchase solar PV modules that will be manufactured in Newmarket, Ontario for its 130 Megawatt ("MW") Ontario solar portfolio. The modules will be used as part of an approximately $600 million investment by Northland to build ground-mounted solar projects in Ontario, representing one of the largest investments in Ontario's solar energy sector. (Read more here)
Southwest Airlines Co. – Board of Directors declared a quarterly dividend of $.0045 per share to Shareholders of record at the close of business on December 8, 2011 on all shares then issued and outstanding. The 141st consecutive dividend will be paid on January 5, 2012. (Read more here)
Monster Worldwide, Inc. - Recently at f8, Facebook's developer's conference, Monster.com, the leading job matching engine and flagship brand of Monster Worldwide, Inc. (NYSE: MWW), announced that BeKnown - Monster's new professional networking app on Facebook - is launching new features that make it possible for people to add professional updates such as career changes and college graduation directly to their Facebook profile. (Read more here)
Advanced Micro Devices, Inc. - , AMD recently announced that its new AMD Opteron™ 6200 Series processor has been selected by the editors and readers of HPCwire as one of the top five new products to watch for 2012, and will power the National Science Foundation's Blue Waters project at The University of Illinois' National Center for Supercomputing Applications (NCSA). In addition, AMD is prominently featured in the latest bi-annual TOP500 Supercomputers list for deploying more than two million AMD Opteron cores to many of the world's fastest supercomputers across 14 countries. (Read more here)
The major averages retreated in the face of stern resistance and lack of leadership. Eventually, a technical breakdown resulted in precipitous losses as the day went on. The slide steadied after the S&P 500 established the 1210 area, dropping to almost a month low, nevertheless stocks at no time recovered. The euro wafted down as the day went on, resulting in only a slight advance.
Market volatility preoccupied participants from noticing the positive results. Initial jobless claims for the week ended November 12 totaled 388,000, less than the 398,000 initial claims anticipated, marking the lowest initial claims rate since April. Housing starts in October rose to an annualized rate of 628,000, which was greater than the anticipated pace of 604,000. Building permits set an annualized pace of 653,000, surpassing the predicted rate of 603,000.
The Philadelphia Fed Survey for November slipped to 3.6 from 8.7 in the prior month. Many had expected to ease to just 7.5. There were no advancing sectors. Sector performance was as follows: Telecom -0.5%, Consumer Staples -0.5%, Utilities -0.6%, Health Care -1.2%, Consumer Discretionary -1.7%, Industrials -1.8%, Financials -2.1%, Energy -2.1%, Tech -2.2%, and Materials at -2.9%.
Based on several bullish technical indicators, the market's unending resilience in the face of continual negative headlines, the performance of S&P 500 stocks this earnings season and a bullish outside month in October, I believe the market is setting up for a year-end rally regardless of the near-term noise.
In an insightful piece by CNBC Fast Money executive producer John Melloy, Melloy reveals a key player at the center of the eurozone crisis believes worries may be overblown. Melloy states:
Ironically, the chief U.S. economist at a company in the cross hairs of the European crisis believes investors are too concerned about a ripple effect on these shores and believes the American economy could be growing at the fastest pace in almost five years. (Read more here)
It is hard to think beyond the current state of affairs when negative preoccupations always seem to repeat themselves, and you are stuck on a roller coaster ride of continual highs and lows, but the ride inevitably ends, although once the storm clouds clear, the problem is it’s already too late to buy, all the savvy investors ran up the prices. Fortune favors the bold. Hopefully, you have some dry powder and can take advantage of these opportunities. I’m not saying that you should buy into a full position today, but this may be a good opportunity to layer in to these stocks at a tenth or a quarter at a time.
Additional disclosure: Please use this information as a starting point for your own due diligence.