Altria (NYSE:MO), Amazon (NASDAQ:AMZN) and Starbucks (NASDAQ:SBUX) recently reported earnings. Valuations and analysis suggest investors should take profits on Altria and Starbucks and buy shares of Amazon. (Click charts to enlarge.)
Altria - Overvalued (Sell)
- Tobacco is a concentrated industry with strong pricing power.
- The industry is mature with little to no growth and high barriers to entry.
- Revenue (TTM)/share increased the last few quarters to Q4 2010 levels.
- Book value/share has declined since the start of 2011.
- Price/sales and price/book value have increased as share price has risen.
- Valuations are nearing peaks as fundamentals aren't confirming the rise in share price.
- Share are trading above the rising 50-day moving average in the markup phase which comes before a period of distribution.
- Historically, tobacco enterprises have been one the best creators of value for investors.
Amazon - Undervalued (Buy)
- High-quality earnings suggests the company isn't fudging earnings.
- Historically, retail is fragmented with weak pricing power.
- Current assets greater than current liabilities suggests liquidity.
- The firm's financial leverage level implies continuing operations (solvency).
- Revenue is increasing as the companies continues to grow net sales.
- Book value-per-share has declined in recent quarters.
- Price/sales and price/book value ratios are off of recent peaks and could rise.
Starbucks - Overvalued (Sell)
- The restaurant industry is fragmented with weak pricing power.
- Coffee prices are declining, that will decrease cost of sales.
- Earnings are high quality; the firm generates enough cash from operations for expenditure on investing and financing.
- Revenue-per-share is increasing as operating income-per-share is increasing.
- The valuation ratios have expanded and are due to contract; while revenue and operating income growth justify higher valuations, valuations are near peaks and price should decline.
Additional disclosure: I will be active (long or short) Dow Jones industrial average, S&P 500 & Nasdaq futures contracts within the next 72 hours.