by Larry Gellar
We’ve identified 5 stocks that are getting quite a bit of praise from analysts. TD Ameritrade (NASDAQ:AMTD) and LinkedIn (NYSE:LNKD) should have some significant growth ahead of them. Corning (NYSE:GLW) and Disney (NYSE:DIS) are two more traditional companies that investors should consider. Additionally, Raytheon (NYSE:RTN) should do well as long as reduced government spending in the U.S doesn’t affect it too much. Let’s see what’s been happening with these 5 stocks:
Deutsche Bank upgraded TD Ameritrade from Hold to Buy. The stock now has a price target of $18, and Deutsche Bank is expecting strong near-term performance from brokerage stocks. In fact, TD Ameritrade performed rather well in 2011, and the company’s top executives are reaping the rewards. New client assets, in addition to strong earnings, led to this statement from TD Ameritrade’s board of directors:
“Management was rewarded in fiscal year 2011 for successfully executing on the company's business strategy, which, in the face of extremely difficult operating conditions, resulted in record net new assets.”
Some of those difficult operating conditions are discussed here. Low trading volume combined with low interest rates and a weak stock market have made business tough for companies like TD Ameritrade. While there were periods in 2011 when trading hit record highs, the current situation where the markets seem to revolve around Europe has turned off many investors.
Important competitors for TD Ameritrade include Charles Schwab (NYSE:SCHW) and E*TRADE (NASDAQ:ETFC). Those stocks have higher price to earnings and price/earnings to growth ratios despite the fact that their operating margins are lower. TD Ameritrade has a solid operating margin of 37.82%. Dividend investors should note that TD Ameritrade currently has a dividend yield of 1.50%.
Keybanc is rating Corning at Hold. While Keybanc did say that Corning could be a bit weak in the near-term, we think Corning has some exciting products out right now. One such product is Gorilla Glass, and the company is set to show off Gorilla Glass 2 at the 2012 Consumer Electronics Show in Las Vegas. The idea behind this product line is that the tough material is perfect for items that frequently get dropped such as smartphones and tablets. Having sold over 500 million units of Gorilla Glass throughout the world, this product is a favorite amongst manufacturers of over 575 different products. Here’s a statement about Gorilla Glass from Corning’s James Steiner:
“Handset and tablet device manufacturers are clearly driving toward higher functionality from thinner designs. Corning’s latest innovation in Gorilla Glass technology is very well positioned to meet these challenges and enable broader touch technology penetration.”
Corning is also doing well with its other segments, as described here. The article explains that because investors have been paying so much attention to the flat panel display business, Corning is actually undervalued because the company’s other divisions are also doing well. For example, the company has made a couple of innovations with its Life Sciences division, as discussed here.
Sterne Agee is rating Raytheon at Neutral. While Sterne Agee did say that Raytheon’s domestic growth could be weak, we think the company has some good international operations going. For instance, the company is teaming up with Thales Australia to create a next generation desktop system for Australia’s Department of Defence. Here’s what Ed Hammersla, chief operating officer of Raytheon Trusted Computer Solutions, has said:
“Australia's NGD initiative shows the accelerated adoption of trusted cross domain technologies, within the 'Five Eyes communities. The ability to reliably access information on multiple sensitive networks across the enterprise is critical to national security in the U.S. and with our allies.”
In other news, Raytheon is acquiring Henggeler Computer Consultants. This cybersecurity and software engineering firm is based out of Columbia, Maryland and should make for a good addition to Raytheon. In fact, Raytheon has been somewhat aggressive with cybersecurity acquisitions lately.
Important competitors for Raytheon include Boeing (NYSE:BA), Lockheed Martin (NYSE:LMT), and Northrop Grumman (NYSE:NOC). Ratios like price to earnings, price/earnings to growth, and price to sales put Raytheon in the middle of those companies, although Raytheon does boast the best margins. Those numbers are 20.25% gross and 11.07% operating. On the other hand, Raytheon’s quarterly revenue growth is -2.20% year-over-year.
BMO Capital increased their earnings estimates for Walt Disney through 2013. In fact, BMO Capital has an Outperform rating on the stock and a price target of $48. Amongst other things, the firm noted that Disney’s cable channels will continue to grow and that cost-cutting measures are doing well. Furthermore, Disney had some big news lately. The company made an agreement with Comcast (NASDAQ:CMCSA) that will allow the cable company to broadcast Disney, ABC, and ESPN programs via the Internet and on-demand services. This landmark move will change the landscape of television forever. Cable certainly has its stumbling blocks still – prices and packages that don’t make sense for a lot of consumers – but this deal should help Disney bring its product into the 21st century. Here’s what Anne Sweeney of the Disney/ABC Television Group had to say:
“By combining the best news, sports and entertainment content available today with cutting-edge technologies, we’re able to fully realize our comprehensive TV+ initiative, and introduce a brand new suite of authenticated services to Comcast subscribers.”
Important competitors for Disney include News Corp. (NASDAQ:NWSA) and Time Warner (NYSE:TWX). Those stocks have lower price to sales ratios and better quarterly revenue growth, so investors might want to check those out as well instead of pursuing what might be one of the laggards of the Dow.
UBS increased their earnings estimates for LinkedIn, and the bank maintains a Buy rating on the stock. That’s surprising because many investors are (rightfully) wondering if this stock is still overpriced despite its recent decline. After all, the current stock price is 60 times higher than 2013’s projected earnings per share. As competition from Facebook, Google (NASDAQ:GOOG), Microsoft (NASDAQ:MSFT), Viadeo, and even Monster Worldwide (NYSE:MWW) increase, LinkedIn could begin to suffer.
On the other hand, there are perhaps two reasons to consider a LinkedIn purchase. For example, current market trends suggest that the stock may have some upside in the near-term. Additionally, LinkedIn is profitable right now, which is more than a lot of other busted IPOs can say. In fact, UBS isn’t the only firm that likes LinkedIn right now – Collins Stewart does too, as well as some of the banks that underwrote LinkedIn in the first place. While LinkedIn may be able to grow in terms of some statistics, it’s hard to envision a situation where the company’s profits skyrocket to the point that today’s price is justified. As for margins, it’s worth noting that Monster Worldwide has a slightly better operating margin, while LinkedIn has a significantly better gross margin.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.