By Andrew Samuels
I used finviz.com to screen for the fastest growing stocks selling at favorable price to earnings ratio. Here is my analysis of contrarian investment ideas. I think that investors are under-appreciating weaknesses in Anadarko, GMCR, AMR, Suncor, and Apple. Through my analysis I conclude that these stocks should be avoided.
Green Mountain Coffee Roasters (GMCR) - GMCR is a specialty provider of coffee, tea, and k-cup varieties. The last trade price was around $50. The stock has lost nearly half its value from September to the current date. The current price is about $20 above its 52 week low of $31.21. The stock maintains a price to earnings ratio of 37, which is above the industry average, but on pace with competitor Peet’s Coffee & Tea (PEET) at 39.8. Although the company has experienced a steep decline in price, the stock’s fundamentals indicate that the company is still overvalued. GMCR has a price to sales ratio of 2.94 and a price to book of 4.08. Both of these values indicate that the investor is paying a 3x and 4x premium for any return in value. In comparison, the industry standard ratio for price to sales in the processed & packaged goods industry is about .80. Furthermore, a technical analysis of the three-month chart exposes a downward trend. GMCR closed below both the 10 and 50-day exponential moving averages, which indicate the stock will trend downward in the short-term. Similarly, an analysis of the MACD reveals additional bearish indications. While the company has posted an impressive 90% quarterly revenue growth, the negative technical indicators and its recent decline lead me against purchasing GMCR.
AMR Corporation (AAR) - AMR Corporation is a primary operator in the aerospace and defense industry, and its ticker is representative of its flagship operation American Airlines, Inc. The stock is trading around $8.7, which is near its 52-week low of $8.48. The company was not profitable in the last quarter and it lost $2.93 per share. An analysis of the company’s fundamentals reveals some interesting figures. The company’s price to sales ratio is 0.13, which indicates that the stock is undervalued. However, the company has been consistently losing money, with a profit margin of -4.16%. Similarly, AMR has nearly $11.6 billion dollars of debt, with only $4.30 billion in cash on the balance sheet. The high percentage of debt to cash is a foreboding sign given the volatile economic climate. Likewise, a technical analysis of the stock exposes further negative trends. AMR is trading below both its 10 and 50-day exponential moving averages, indicating a short-term negative trend. Furthermore, the MACD closed below the 9-day exponential moving average, which reinforces the bearish analysis. Overall, the company is not a buy because of the large debt holdings and the negative technical indicators.
Suncor Energy (SU) - Suncor Energy is a Canadian corporation that operates as an integrated energy company. At the time of Jones’ purchase, the stock was trading around $27. Since his purchase, the stock has swung from a low of $24 to a high near $33. SU’s price to earnings ratio is 12.5, which is on par with competitor Imperial Oil Ltd. (IMO) at 11.2 and below the industry standard of 189. SU offers a dividend of $0.43 at a yield of 1.4% with a current earnings per share value of $2.37. The dividend yield of 1.4% places it 27/542 within the independent oil & gas industry. Over the last three quarters SU has posted an increase in revenues with a quarterly revenue growth percentage (year over year) of 39.2%. The price to sales ratio is 1.23, which is near competitor IMO at 1.29. The gross margin of 51.55% and operating margin of 17.5% indicate that the company is effectively controlling its costs and expenses. Additionally, the company has a large percentage of cash to spend on business operations. Therefore, SU’s fundamentals reveal a strong financial base for the company, one that should be able to weather the volatility caused by the issues in the Eurozone. However, a technical analysis reveals a short-term bearish trend. The company is trading below both its 10 and 50-day exponential moving averages. Similarly, the MACD is below its 9-day exponential moving average. Furthermore, the stock gapped lower Monday and never recovered, signaling a bearish trend. Likewise, I would hold on the stock and wait to see where the stock meets resistance; if it trades near the $24.00 mark again I would issue a buy rating for the stock.
Apple Inc. (AAPL) - Similar to Suncor, AAPL is trading near its September price around $363. The stock’s 52 week range is $306.56-$426.70, so it is near the mid to high end of the range. The price to earnings ratio is 13.33 and the earnings per share is $27.68. Both of the values are on par for the industry average. AAPL’s five-year price to earnings growth ratio of 0.57 indicates that the stock is undervalued, but the stock does carry a hefty price. Furthermore, it is important to factor in how well AAPL will do competitively in the future, as companies like Motorola Mobility Holdings (MMI) and Google (GOOG) release products that directly compete with AAPL. AAPL has posted consistent revenue growth with a quarterly revenue growth (year over year) percentage of 39%. The net income of $25.92 billion outpaced competitors Google, Hewlett-Packard (HPQ), and Research in Motion (RIMM). The company does not offer a dividend although it is sitting on nearly $26 billion dollars in cash and cash equivalents. Although the company has been the darling of American tech companies over the past several years, a technical analysis reveals AAPL to be sensitive to the same broader market trends affecting other stocks. The stock closed below both its 10 and 50-day exponential moving averages. Additionally there is a negative divergence in the MACD. Overall, if you can afford the hefty price AAPL will pay out in the long term for the growth investor. Having said that, the technical analysis, absence of a dividend, and broader market trends lead me against buying the stock for the more common investor.
Anadarko Petroleum Corporation (APC) - APC operates in the exploration and production of oil and gas. Currently trading near $72, APC is about $13 below its 52 week high of $85.50. The company was not profitable in the last year, but many of the fundamental and technical indicators lead me to a buy rating. The stock offers a dividend of $0.36 and a yield of 0.50%. The company’s quarterly revenue growth figures (year over year) of 34.50% exceed the industry standard of 19%. Similarly, the gross margin of 80.34% and operating margin of 22.47% means that the company has more cash to spend on business operations, and their management is effectively controlling costs and expenses. The five-year price to earnings growth ratio of 0.79 is below competitors British Petroleum (BP) at 1.6, ConocoPhillips (COP) at 160, and Exxon Mobil Corporation (XOM) at 1.35. This figure indicates that the market currently undervalues the stock and that the company is expecting growth in the long run. A technical analysis reveals some bearish indicators with the stock closing beneath both the 10 and 50-day exponential moving averages. Despite this, APC has been expanding its shale production and although the stock may take a hit during this volatile economic climate, there could be upside in the stock down the road. Overall, however, this stock is one to avoid.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.