By Larry Gellar
We’ve identified 5 stocks whose 20-day moving average crossed above their 200-day moving average. That means a bullish trend could be under way, making now a good entry point. Aetna and International Paper are two stalwarts that investors should consider, while takeover rumors are fanning the flame on Rite Aid. Additionally, American Eagle Outfitters stands to benefit nicely from this year’s holiday shopping. Let’s see what’s been happening with these 5 stocks:
American Eagle Outfitters, Inc. (AEO) has been volatile lately, and there are a variety of factors affecting this stock as discussed here. After American Eagle Outfitters’ last business update, many investors are wondering what the company’s margins are looking like. Sales are doing well, but the company may have to step up its advertising in order to keep that up. A lower price for cotton and improved business on the internet should help American Eagle Outfitters going forward, however. Investors should also keep an eye on same-store sales when the next earnings report comes out. American Eagle Outfitters has also decided the compensation for its new CEO Robert L. Hanson. He’s expected to have a base salary of $1 million, boosted by a signing bonus of $3.3 million.
Important competitors for American Eagle Outfitters include Abercrombie & Fitch (ANF), Gap (GPS), and Pacific Sunwear of California (PSUN). American Eagle Outfitters is right in between Abercrombie & Fitch and Gap for price to earnings, price/earnings to growth, and price to sales ratios. Operating margin for American Eagle Outfitters is pretty strong at 10.02%, although gross margin of 38.52% is about average. Quarterly revenue growth of 3.7% is about in line with the rest of the industry.
Aetna Inc. (AET) has been on an upward trend lately, and the company is coming out with some exciting new improvements to its website. Here’s what Sandip Patel, head of Aetna International, had to say: “This new web functionality is a critical step in Aetna’s continued efforts to make it easier for people to access content that is relevant to them and accessible in a manner they prefer.” Meanwhile, some investors are contemplating Aetna options as a good investment strategy. The full details can be found here, but Aetna’s technical indicators suggest that buying puts could be a wise option. Aetna’s also been creating a new healthcare plan called Aetna Whole Health. The idea behind it is that new information will help Aetna make better choices about how much insurance should cost, so this could be quite lucrative.
Important competitors for Aetna include Cigna (CI), Unitedhealth (UNH), and WellPoint (WLP). Price/earnings to growth and price to sales ratios are pretty low for Aetna, although price to earnings is about average. Margins too are about at the middle of the pack – those numbers are 29.66% gross and 9.48% operating. As for cash flows, $664 million came in during 2010 and $90 million came in during the first 9 months of 2011. Cash flows were diminished due to new expenditures on investing activities.
International Paper Co. (IP) stock has been moving up, and the company just contributed $300 million to its pension fund. This should be taken as a sign of financial strength, and many investors are reconsidering the value of this stock. Additionally, one of International Paper’s subsidiaries, xpedx, is working to improve environmental sustainability on college campuses. This is a wise move to try to bring in life-long customers in the form of college students, and here’s what Dave Wallace, xpedx’s director, had to say: “Responsible stewardship of natural resources at xpedx includes sustainable operations, sustainable product choices and sustainable business practices. All three elements will be key in the Campus Greening Challenge.” In other news, International Paper will be laying off a host of workers at its factory in Indianapolis.
Important competitors for International Paper include MeadWestvaco (MWV) and Weyerhaeuser (WY). Those stocks have significantly higher price to earnings and price to sales ratios, although International paper’s price/earnings to growth ratio is about average. International Paper has the best gross margin at 27.22%, but operating margin of 8.56% is at the middle of the pack. As for cash flows, International Paper brought in $181 million during 2010 and $649 million during the first 9 months of 2011. In fact, operating cash flows are doing quite nicely.
Lennar Corp. (LEN) stock price has been going up, although many investors still aren’t convinced that the housing market is going to recover soon. One good article about that perspective can be found here, and the truth is that there’s still quite a credit crunch happening right now. Others contend though that Lennar is different from other homebuilders and is the right one to buy. In fact, Lennar’s management team has the respect of shareholders across the country. Additionally, the company is notable for adjusting to the new economic reality sooner than its competitors. As for recent news, Lennar recently put out $300 million in convertible notes. That money will be used for general corporate purposes such as paying off other debt.
Important competitors for Lennar include DR Horton (DHI), KB Home (KBH), and PulteGroup (PHM). KB Home and PulteGroup have negative trailing twelve-month earnings, while Lennar and DR Horton have price-to-earnings ratios of 34.38 and 49.09 respectively. DR Horton has a significantly higher price/earnings to growth ratio, but their price-to-sales ratios are nearly identical. Lennar’s gross margin (7.38%) is a bit low, but its operating margin of 4.32% is pretty good. Investors should note that Lennar’s beta is 1.68.
Rite Aid Corp. (RAD) stock has been somewhat volatile lately, although the company benefited handsomely from being open on Thanksgiving. Here’s what John Learish, senior vice president of marketing, had to say: “With 4,700 convenient locations and regular Thanksgiving hours, Rite Aid wants to help customers get a great start on their holiday shopping. Our shoppers will also find great deals on some hot holiday gifts, including some fun finds they may not have expected to see at the neighborhood drugstore.” Also good news is that Rite Aid workers in Cleveland have stopped striking. Rite Aid's increase in worker contributions for health care is what had caused the problem.
Important competitors for Rite Aid include CVS (CVS), Walgreen (WAG), and Wal-Mart (WMT). In fact, one analyst has been speculating that Walgreen might make an offer for Rite Aid. This would allow Walgreen to gain bargaining power with pharmacy benefit managers such as Express Scripts (ESRX). As for value metrics, Rite Aid’s price to sales ratio is only 0.04, although price to earnings and price/earnings to growth are currently incalculable. Additionally, Rite Aid margins are somewhat weak – those numbers are 26.39% gross and 1.12% operating. Investors should note that this stock has a beta of 2.30.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.