By Larry Gellar
Today we’ll be taking a look at the five most traded NYSE stocks during the first full week of January. Bank of America (BAC) and Citigroup (C) are doing quite well, as banks are starting to gain favor again amongst investors. Also, Pfizer (PFE) and Nokia (NOK) have some exciting plans. Finally, Ford (F) continues to be largely affected by macroeconomic trends. Let’s see what specifically has been happening with these 5 stocks:
Nokia Corporation has been surging, and an upgrade from Kulbinder Garcha of Credit Suisse has certainly helped. More importantly, though, Microsoft (MSFT) may simply buy Nokia’s smartphone business. This would be a great move for Microsoft since it would allow for integration with its Windows Phone similar to the way that Apple’s (AAPL) iOS is integrated with the iPhone. Additionally, it would allow Nokia to focus on what the company is truly great at. Regardless, other sources claim that these rumors aren’t true. While Microsoft might be interested in Nokia’s patents and a couple of factories, the plan will probably continue to be an exceptionally strong partnership. In fact, most of the Microsoft-Nokia rumors are being perpetuated by one person – Eldar Murtazin. While Murtazin was correct in predicting that Nokia would choose to work with the Windows Phone over Android, Murtazin has wrongly predicted Nokia moves in the past. Meanwhile, Nokia’s Lumia 710, the company’s first Windows Phone, will be released in the U.S. on the 11th of January. Nokia’s biggest competitor is LM Ericsson (ERIC), and that stock is cheaper using price to earnings and price/earnings to growth. LM Ericsson also has much better margins – those numbers are 37.26% gross and 12.51% operating.
Ford Motor Company has been moving up, a new article from Forbes suggests that Ford’s business is rapidly improving. KPMG surveyed 200 top-level auto executives, and the general consensus appears to be that Ford is back on the rise. After having serious problems a few years ago, it seems that Ford has made the type of structural adjustments necessary to succeed in the 21st century. In our opinion, it is still in the early innings of laying a great foundation for growth through great design. The company also caught a break when Toyota (TM) had to make some recalls, and Ford’s product mix has exceeded many analysts’ expectations. While automakers across the board had a pretty good 2011, many of them are remaining cautious going into 2012. Recently, sales have improved due to low interest rates and improved selection at dealers. Those trends figure to continue, but it’ll be hard for the auto industry to repeat the type of year it had in 2011 unless the economy improves substantially. Additionally, the auto industry is still far behind the type of success it experienced prior to the Great Financial Crisis. After all, lack of growth in real income, unemployment, and low consumer confidence still plague the American economy. As for value metrics, General Motors (GM) is cheaper than Ford using price to earnings, price/earnings to growth, and price to sales, but Ford has the better margins.
Citigroup, Inc. has been moving up slowly, and the bank is working a new collateralized loan obligation that will be managed by Apollo Global Management (APO). That fund will be worth $400 million, and $257 million of the debt has been rated Aaa and AAA by Standard & Poor’s and Moody’s respectively. Other news for Citigroup has centered on Europe. Spain’s economic minister told the Financial Times that the government is planning to reserve 50 billion euros to deal with bad property assets. In fact, news like that combined with Citigroup’s exposure to Europe has spooked investors pretty badly. One example of this can be seen in recent bond yields from Citigroup. Described here, the yield spread on some recent bonds from Citigroup was 360 basis points above comparable debt on $2.5 billion worth of 5-year notes. That’s actually higher than recent debt from Brazil and Mexico, which was longer-term. Important competitors for Citigroup include HSBC (HBC) and JPMorgan Chase (JPM), and both have higher price-to-earnings and price-to-sales ratios. That’s partly caused by their higher operating margins as well as their lower perceived risk. (Citigroup has an operating margin of 22.19%, while HSBC’s is 34.75% and JPMorgan Chase’s is 38.96%).
Bank of America Corporation has been skyrocketing, and analysts seem to be warming up to the banking industry as a whole. Citigroup confirmed its Buy rating on Bank of America recently, and Jason Goldberg of Barclays says that not owning bank stocks is actually riskier than owning them right now. In other news, there’s been a rumor that President Obama might start a federal program to propel mortgage loan refinancing. That would certainly help out Bank of America, and the rumor is spreading at a time when economic data is suggesting that growth may be on the way. Jobless claims are decreasing, and ADP estimates that 325,000 private-sector jobs were created in December. With its beta of 2.85, Bank of America will react quite favorably if the upcoming employment report turns out to be a good one. Regardless, potential investors should keep in mind that Bank of America still has a couple of big problems. The bank’s Tier 1 common equity ratio is quite low, which leads many to believe that the company will have to continue to raise capital. Another problem is that there still may be mortgage-related losses to declare. Specifically, Keith Horowitz of Citigroup says that $32 billion more may need to go on the banks in order to get the situation cleared up.
Pfizer, Inc. While Paul Bisaro previously said that Pfizer would retain about 40% of Lipitor’s market share, Bisaro now says that number will be less. Investors should keep in mind that Lipitor no longer has patent protection and is now subject to competition from generic alternatives. More information about Lipitor can be found here. That article argues that Pfizer is still a good choice despite the patent expiration because it has a variety of new products coming out, especially in Europe. (Because Europe tends to have more lax regulations, Pfizer will introduce more products there). In other news, Pfizer is reorganizing its animal business a bit. The animal health division from the company’s Indian subsidiary will be merged with Pfizer’s larger animal health business. In fact, many analysts believe that it won’t be long before the animal health business is spun off. Important competitors for Pfizer include Bayer (OTCPK:BAYRY), Merck (MRK), and Novartis (NVS). Those stocks have lower price/earnings to growth ratios, but Pfizer may be the highest-quality company due to its impressive margins. Those numbers are 77.75% gross and 27.79% operating.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.