By Larry Gellar
Let’s take a look at the recent stock picks from CNBC’s Jim Cramer on November 4. IBM and Intel (INTC) have performed well, as technology is starting to rebound. On the other hand, Estee Lauder (EL), Vodafone (VOD), and Wynn Resorts (WYNN) have fallen, and global economic problems are certainly to blame. In fact, worries about China have hurt Wynn quite a bit. Let’s see what specifically has been affecting these stocks:
Estee Lauder – Recommended at $118.92, now trading at $114.66. As discussed in this Reuters article, Estee Lauder is part of a group of companies that have had success with raising their prices despite a tough economy. While McDonald’s (MCD), Nike (NKE), and Starbucks (SBUX) have made their products more expensive, Estee Lauder has been the doing the same with its Origins line. In fact, customers have been snapping up moisturizers priced at $35 and face wash priced at $25. As for investment-related news, traders have been taking into account some interesting facts about EL stock. The stock is now trading ex-dividend, and options volume has increased dramatically. Current trends point to Estee Lauder not having much more upside, especially considering it’s trading near lifetime highs. Important competitors for Estee Lauder include L’Oreal (LRLCY.PK) and Procter & Gamble (PG). Those stocks both have lower price-to-earnings and price-to-sales ratios. Operating margin for Estee Lauder is a bit weak, although gross margin of 78.49% is very high. As for cash flows, Estee Lauder brought in $132 million during fiscal year 2011 and $533 million in the 3 months after that. Recent outflows have been caused by negative amounts of cash from operating activities and stock repurchases.
International Business Machines – Recommended at $187.30; now trading at $190.84. IBM is purchasing Curam Software, and this is a good idea for a number of reasons. Most importantly though, Curam focuses on software for the government, which means adding it to IBM’s portfolio will help its integration efforts. IBM has also had some important breakthroughs lately, including projects involving Racetrack memory, graphene, and carbon nanotubes. Here’s what T.C. Chen, IBM’s vice president for Science and Research, had to say: “Today's breakthroughs challenge the status quo by exploring the boundaries of science and transforming that knowledge into information technology systems that could advance the power and capability of businesses worldwide.” For more information about IBM’s research and development, consider watching this video, which details some of IBM’s new ideas. IBM is also having tremendous success with selling servers. In fact, the company beat both Hewlett-Packard (HPQ) and Dell (DELL) for sales in the third quarter, according to Gartner. Important competitors for IBM include Accenture (ACN), Hewlett-Packard, and Microsoft (MSFT). Price to earnings, price/earnings to growth, and price to sale ratios are higher than average for IBM. That’s balanced out by pretty strong margins, however – those numbers are 46.64% gross and 20.21% operating. We are not surprised by Buffett's recent investment in the company.
Intel – Recommended at $24.20; now trading at $25.01. Not only does Cramer like Intel, but Alex Gauna of JMP Securities has increased his price target on the stock slightly. Intel has some good products coming out, and Advanced Micro Devices (AMD) appears to be falling behind. Future market conditions as well as the flooding situation should also benefit Intel more than Advanced Micro Devices. Meanwhile, semiconductor trade groups are predicting that semiconductor sales will go over $300 billion this year. That has investors excited because the industry had slowed a bit previously. In fact, here at Investment Underground, we see a lot of reasons to like Intel. Consider reading this article, which explains amongst other things why Intel is very strong right now financially. Besides Advanced Micro Devices, Texas Instruments (TXN) is one other company that competes with Intel. That stock is higher for price to earnings, price/earnings to growth, and price to sales ratios. Meanwhile, Intel has the better margins – those numbers are 62.46% gross and 32.77% operating. As for cash flows, Intel brought in $1.559 billion during the past 40 weeks. Large amount of cash from operating activities have helped that tremendously. Investors should note that this stock has a beta of 0.95.
Vodafone Group – Recommended at $28.06; now trading at $27.11. Vodafone is actually a 45% owner of Verizon Wireless, so news regarding that subsidiary is certainly important for Vodafone investors. In fact, Verizon Wireless making some exciting new innovations to help medical workers. Here’s what the executive director of Verizon Wireless’s mHealth solutions had to say: “Verizon Wireless is committed to the healthcare vertical, and we feel that medical practitioners need the best network to accomplish their goals and run efficient practices. We have engaged in conversations with healthcare professionals of all levels and worked together from the ground up to deliver the right solutions from a technology standpoint.”
Verizon Wireless also just made a lucrative deal with Comcast (CMCSA), Time Warner Cable (TWC), and Bright House Networks. Essentially, Verizon Wireless will get some new spectra and the companies will eventually help to sell each other’s products. Deutsche Telekom (DTEGY.PK) is Vodafone’s biggest competitor. That stock has over double the price-to-earnings ratio but a much lower price-to-sales ratio. Vodafone has the better operating margin, while Deutsche Telekom has the better gross margin. Other competitors like Turkcell (TKC), VimpelComp (VIP), and France Telecom (FTE) have better margins than Vodafone as well.
Wynn Resorts – Recommended at $133.69; now trading at $117.63. A new law in Massachusetts, will allow for three casinos and a slots parlor to be built, which is why Wynn Resorts CEO Steve Wynn has been checking out potential new locations for the company. In fact, the New England Patriots own some land near its stadium that could be of interest. The only problem is that the NFL doesn’t allow teams to have relationships with “gamblers” or “gambling activities,” so it remains to be seen how this will play out. Meanwhile, here’s what a spokesman for The Kraft Group had to say: “We believe that Wynn Resorts is best in class in the resort destination industry, and we've invited Steve Wynn to visit Foxborough to meet with residents and decide if there is mutual interest in exploring a resort destination here.” Meanwhile, Wynn Resorts is doing quite well with its operations in China. Some investors are worried about China’s economy, but revenue is up significantly for properties in Macau. Important competitors for Wynn Resorts include Las Vegas Sands (LVS) and MGM Resorts (MGM). Value metrics are most similar for Las Vegas Sands, although that stock’s price-to-earnings, price/earnings-to-growth, and price-to-sales ratios are all slightly higher than Wynn Resorts. Wynn Resorts has a much higher gross margin, but Las Vegas Sands has the better operating margin.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.