By Larry Gellar
Here we have the 5 most traded NYSE stocks from last week's recent trading sessions. Bank of America (BAC) and JPMorgan Chase (JPM)continue to see a ton of trading, as traders try to benefit from each bank’s mortgage situation. RSC Holdings (RRR) got a big boost due to being acquired by longtime rival United Rentals (URI). Meanwhile, Pfizer (PFE) and General Electric (GE) continue to be snapped up by investors looking for safe blue-chip stocks. Let’s see what specifically has been happening with these companies:
Bank of America Corporation (BAC) has been moving down the past few days, although the bank is receiving a vote of confidence from its retired CEO Hugh McColl Jr. Excerpts from the Reuters interview can be found here, the gist of it is that McColl believes that Bank of America cannot be fixed overnight. With that in mind, current CEO Brian Moynihan appears to be resolving them at the appropriate pace, the biggest issue being the situation surrounding Countrywide Financial.
As for McColl’s predictions about the banking industry as a whole, McColl pointed out a number of factors could put a drag on future performance: a poor housing market, a poor economy, and the seemingly never-ending lawsuits about mortgage practices. Important competitors for Bank of America include Citigroup (C) and Wells Fargo (WFC). Those stocks have much higher price to sales ratios, in part caused by higher operating margins and less perceived exposure to mortgage problems.
One statistical bright spot for Bank of America is quarterly revenue growth of 17.60, however. As for cash flows, $12.912 billion flowed out during 2010 and $25.562 billion flowed out in the first 9 months of 2011. Both investing and financing activities have caused the outflows.
General Electric Company (GE) has been moving up recently, and the company’s Healthcare division continues to make waves. Indeed, it is beginning a campaign called MIND (Making an Impact on Neurodegenerative Diseases) that should increase awareness of the company’s healthcare solutions. Here’s what Pascale Witz (President and CEO of GE’s Medical Diagnostics subdivision) had to say:
We are committed to improving things for patients and for caregivers, and will use our expertise and our voice to call on policymakers to act to alleviate the suffering caused by neurodegenerative disease.
Meanwhile, Barclays Capital analyst Scott Davis likes where GE Industrials is going. He notes that the division could grow significantly in 2012, with transportation-related products performing the best.
On the other hand, many institutional investors are getting out of GE, with the biggest concern being how the company’s financial services division will do in this tough economy. In fact, institutional investors have already sold $20.7 billion worth of GE stock in Q4 2011. One good stock to compare General Electric to is Siemens (SI). That stock is cheaper using price to earnings, price/earnings to growth, and price to sales ratios. That can partly be explained by GE’s superior margins – those numbers are 38.25% gross and 13.59% operating.
Pfizer, Inc. (PFE) has been on the rise, and a new partnership with GlaxoSmithKline (GSK) should help both companies break further into the emerging markets. The companies will provide an enormous amount of pneumonia vaccines for a discounted price to a variety of developing nations. The countries involved as well as GAVI Alliance will be the ones paying for the vaccines.
While such a deal may not bring in the type of revenue that Pfizer and GlaxoSmithKline would expect in developed countries, it could have a positive impact on future business. Another big story for Pfizer has been the situation surrounding its Prempro drug, made by a company it acquired in 2009. The issue is that Pfizer has been target of a number of lawsuits claiming that the drug increased risk for breast cancer. Pfizer says that 46% of cases have been dealt with, and a hefty sum of cash has been reserved for the remaining ones.
Regardless, Zoe Littlepage, one lawyer representing women against Pfizer, claims that this reserve will not be enough. Important competitors for Pfizer include Bayer (OTC:BAYRY), Merck (MRK), and Novartis (NVS). Pfizer has the highest price/earnings to growth and price to sales ratios out of those stocks, and terrific margins (77.75% gross and 27.79%) help explain that.
RSC Holdings Inc. (RRR) has skyrocketed, as United Rentals (URI) announced that they would purchase the company for $1.9 billion. In fact, this was a tremendously wise deal for United Rentals. With RSC Holdings under its belt, the company should be able to cut costs and grow its business more efficiently. Investors are also expecting that the combined companies will have an easier time stabilizing revenue.
On the other hand, a host of law firms are planning an investigation into whether RSC acted in shareholders’ best interests. With RSC stock up over 50%, it seems pretty likely that the deal will be cleared from that perspective, although regulatory issues such as antitrust could crop up. Hertz Global Holdings (HTZ) is one other company that competes with RSC and United Rentals. Hertz has an extremely high price to earnings ratio of 49.17, although price/earnings to growth and price to sales ratios are quite low.
As for margins, RSC is a bit low for operating margin, although gross margin is better. Cash flows for the company have been mixed, with $1.02 million flowing out in 2010 and $24.3 million flowing in during the first 9 months of 2011. Improved operating cash flows as well as taking on more debt were the cause of that turnaround.
JP Morgan Chase & Co. (JPM) has been up and down the past few days, and a fascinating New York Times article about the company’s mortgage situation can be found here. Essentially, many of the investors that went after Bank of America are now turning their attention to JPMorgan. Part of the problem is that Bear Stearns and Washington Mutual were both bought by JP Morgan, and both of those companies are notorious for their mortgage-related problems.
The specific issue at hand is whether the JP Morgan’s mortgage-backed securities were misrepresented, and JP Morgan may have to repurchase the loans in question. One spokesman for JPMorgan, Joseph Evangelisti, had this to say:
We stand by our obligations under the agreements in question and we will honor our obligation to repurchase any loan that should be repurchased under the terms of those agreements.
In other news, JP Morgan recently released some debentures as record-low rates. Important competitors for JPMorgan Chase include Barclays (BCS) and Citigroup (C). JPMorgan has the highest price to sales ratio out of those stocks but also the lowest price to earnings ratio. Operating margin of 38.96% is terrific and quarterly revenue growth of 3.60% isn’t too shabby either.