By Larry Gellar
We've identified 5 hot stocks that are getting praise from analysts. While Research in Motion (RIMM) is stirring up controversy, Home Depot (NYSE:HD) and Pier 1 (NYSE:PIR) are two retailers ready to break out. Meanwhile, BB&T (NYSE:BBT) and VF Corp. (NYSE:VFC) have strong fundamentals that investors should look into. Let's see what's been happening with these 5 stocks:
Research in Motion
Analyst action: Deutsche Bank upgraded Research in Motion from Sell to Hold with a price target of $18.
Recent headlines: The big news here is that Chief Operating Officer Thorsten Heins is being promoted to CEO. That comes at the expense of previous co-CEOs Mike Lazaridis and Jim Balsillie, although both of those men will stay play important roles on the company's board of directors.
Why we like this stock: While Deutsche Bank is only rating this stock a Hold, we're a bit more optimistic if the price drops anymore. Currently trading for under $16, we believe an attractive entry point for RIMM shares would be at $15. At that point, the valuation outweighs the admittedly numerous issues the company is currently experiencing. While many investors were hoping for Research in Motion to hire an outside candidate for CEO, Heins is still a top candidate because of his intimate understanding of Research in Motion's current situation. There's still a decent chance that Research in Motion will be acquired, and even if isn't, the stock's price-to-earnings ratio of 3.73 is simply rock-bottom. Regardless, investors should wait for technical conditions to ripen before making a move on this stock.
Analyst action: Both Citigroup and Morgan Stanley increased their price target for BB&T.
Recent headlines: BB&T just released a whopping earnings report. Net income was up 88% compared with this time last year, and a number of factors contributed to this success. The bank was able to decrease its loan loss provisions, and the credit climate is also getting better. That allowed BB&T to increase its lending last quarter, and both revenue and net interest income were up versus last year. The full earnings transcript can be found here, and a quick glance at that will reveal BB&T's improved income in a variety of segments.
Why we like this stock: BB&T remains one of the healthiest banks in America, but the stock's value metrics don't seem to have caught up yet. For a price-to-earnings ratio of approximately 15 and price/earnings-to-growth ratio of approximately 1.2, BB&T is trading below fair value. Investors should note that both of those ratios are lower than Regions Financial's (NYSE:RF) and SunTrust Banks' (NYSE:STI). Operating margin of 37.11% is a testament to this bank's strength, and quarterly revenue growth is 27.2% year over year. Unlike many other banks, BB&T is even an attractive choice for dividend investors - dividend yield is currently 2.30%.
Analyst action: Jefferies raised both price target and earnings estimates for VF Corporation.
Recent headlines: The Sunday Times is reporting that VF Corp. is one of the bidders for Helly Hansen. As a maker of outdoor wear, Helly Hansen would be a great choice for VF Corp., although Puma is also in the bidding.
Why we like this stock: VF Corp.'s Timberland and The North Face brands remain tremendously popular. VF Corp has been able to lower its inventory levels, and the company has also done a fine job of sidestepping issues that others in the industry are having. For example, VF Corp. has been able to match high cotton prices by raising prices for its own products. A price/earnings-to-growth ratio of 1.29 helps to make VF Corp. attractive compared with other apparel stocks like Gap (NYSE:GPS) and Sears (NASDAQ:SHLD). Both Gross margin of 46.19% and operating margin of 13.82% are quite strong too.
Caveats: VF Corp. will report earnings on February 16, and investors would be wise to wait until then to make a move on this stock. Operating cash flows have been negative for the current fiscal year, so there may be some underlying trends that require further investigation.
Analyst action: UBS raised its price target for Home Depot to $50.
Recent headlines: Home Depot is acquiring Internet startup Redbeacon. Redbeacon matches up consumers who need work done on their homes with the appropriate contractor, so this could be tremendously valuable for Home Depot. For the time being, though, Redbeacon's operations won't be changing much, and the current management team will stay intact.
Why we like this stock: While the decision to buy Home Depot or Lowe's (NYSE:LOW) obviously won't make or break a portfolio, we like Home Depot a little better right now. Home Depot's superior operating margin of 9.21% is the sign of a well-run business, and Home Depot's price-to-earnings (19.22) and price/earnings-to-growth ratios (1.31) are nearly identical to Lowe's. Home Depot's dividend yield is one-half percentage point higher than Lowe's, so that too could be the tipping point for dividend-minded investors. For more information about Home Depot versus Lowe's, investors may want to check out this article.
Cash flows: Home Depot had over $3 billion of free cash flow during fiscal year 2011, and over $4.5 billion of free cash flow in the 3 quarters after that. This company is positioned well for making future dividend increases and stock repurchases.
Pier 1 Imports
Analyst action: Bank of America increased both earnings estimates and price target for Pier 1.
Recent headlines: December same-store sales increased by 10.3% for Pier 1, and merchandise margins also improved a bit. Pier 1 also reported its earnings not too long ago. Profit rose by a solid 10%, and revenue was up significantly as well.
Why we like this stock: We're pretty bullish overall right now, and Pier 1's whopping beta of 4.90 makes this stock very attractive for that reason alone. Even without that, there are a number of company-specific reasons to choose Pier 1 over similar retailers such as Bed Bath & Beyond (NASDAQ:BBBY) and Cost Plus (NASDAQ:CPWM). Pier 1 is having success with its online To-Go program, which doesn't show up in its already strong same-store sales numbers. That web traffic should contribute to future revenue gains even if customers don't end up making their purchase online. Also, Pier 1 offers an attractive price-to-earnings ratio of 15.7, and gross margin is very high at 59.48%. Additionally, a look at the statement of cash flows reveals that the company has been aggressively buying back stock. That's always a good sign, and it's been backed up by an operating cash inflow of $148 million during fiscal year 2011.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.