The market wiped out early gains based on news of a Spanish bailout deal within an hour of the open, to end the session down big. The Dow was down 1.14% registering a 143 point loss. The S&P 500 was down 17 points, posting a 1.26% loss and the Nasdaq followed suit down 49 points or 1.7%.
It was a 'sell the news' scenario no doubt. Investors are beginning to look past the short term bailout packages. The reality is Europe has a serious growth problem and the issuance of additional debt only exacerbates the issue. The liquidity question may have been resolved; nevertheless, the real concern is solvency. I believe this is why the markets failed to hold early gains.
The five stocks in this article caught my attention by displaying strong relative performance. These five stocks are a few of the top performing S&P 500 stocks for Monday and actually posted gains. This can often be a sign these specific stocks are poised to move higher. On down days, I identify the stocks in the green and take a closer look to see if there is good reason for the strength in the stock.
We will perform a brief review of the fundamental and technical state of each company. Additionally, we will discern if any upside potential exists based on sector, industry or company specific catalyst. The following table depicts summary and performance statistics for the stocks for Monday.
Frontier Communications Corporation (FTR)
Frontier closed Monday at $3.54, up almost 3% for the day. The company is trading 52% below its 52 week high and 73% below the analysts' consensus mean target price of $6.11 for the company. Shares are trading at multi-decade lows. Frontier has some fundamental positives. The company is trading at 81% of book value, 68% of sales and has a forward PE of $15.39. Frontier pays a dividend with an 11.30% yield, although the payout ratio may mean the dividends are unsustainable.
With shares at multi-decade lows, Nomura made a contrarian call on Frontier. The firm thinks the company's massive wireline subscriber losses, which are heavily tied to assets purchased from Verizon (VZ), could soon narrow. It also notes Frontier's low multiples and heavy short interest (23.2% of the float was shorted as of May 15), and sees EPS revisions and multiple expansion driving shares higher. Furthermore, insider buying is up 72% in the last six months. When multiple insiders make purchases in the open market it could be a strong indication that the stock may be primed to move higher.
The stock is under accumulation and has been consolidating at the current level for over a month. The stock is a buy at this level.
NVIDIA Corporation (NVDA)
NVIDIA closed Monday at $12.26, up slightly over 1% for the day. The company is trading 30% below its 52 week high and 35% below the analysts' consensus mean target price of $16.54 for the company. Shares are trading at multi-decade lows. NVIDIA has many fundamental positives. The company is trading at 1.77 times book value, has a PEG ratio of 1.13 and a forward PE of $13.04. The stock trades for only 12.83 times free cash flow. The company is cash rich, has no debt and high profit margins.
NVIDIA's traded higher Monday based on an upgrade to Buy from UBS' Uche Orji, who's keeping his price target at $15.50. Aside from the drop in NVIDIA's multiples, Orji likes NVIDIA's positioning in the market for ARM-based Windows 8 devices; its 28nm Kepler graphics processors (GPUs), and its high-margin professional solutions business, which centers on the company's Quadro GPUs.
NVIDIA is only 6% off its 52 week lows. The stock looks primed to move higher. The risk/reward quotient appears positive at this level. The stock is a Buy.
Newell Rubbermaid Inc. (NWL)
Newell closed Monday at $18.12, up slightly under 1% for the day. The company is trading 6% below its 52 week high and 22% below the analysts' consensus mean target price of $22.12 for the company. Newell has a few fundamental positives. The company is trading at 2.7 times book value and a forward PE of 40, slightly less than the industry average of 43. The stock trades for only 17 times free cash flow, 15 is considered undervalued. Newell pays a dividend with a 2.11% yield.
On May 7th Oppenheimer upgraded the company from Perform to Outperform with a $23 price target. Furthermore, insider ownership is up 81% in the last six months. The company has positive growth in revenues, profit margins, earnings per share and cash flow. The stock looks poised to move higher. Nevertheless, due to the recent double top formation, I would wait for the stock to break out above the $19 dollar mark prior to starting a position.
SCANA Corp. (SCG)
SCANA closed Monday at $47.38, up almost 1% for the day. The company is trading slightly above its 52 week high and 3% above the analysts' consensus mean target price of $46 for the company. SCANA has a few fundamental positives. The company is trading at 1.55 times book value and a forward PE of 14.23. SCANA pays a dividend with a 4.18% yield.
SCANA has been on a good run as of late. The stock has eclipsed its 52 week high and the analysts' mean price target. I can't see getting involved until price targets are adjusted and the stock pulls back at least five percent. If analysts adjust price targets higher and the stock pulls back to the 50 day sma, I would start a position. Although, the fact of the matter is analysts may downgrade the stock based on valuation. In that case I would avoid the stock.
Windstream Corporation (WIN)
Windstream closed Monday at $9.47, up over 1% for the day. The company is trading 24% below its 52 week high and 25% below the analysts' consensus mean target price of $11.84 for the company. Windstream has some fundamental positives. The company has a forward PE of 14.23. Windstream pays a dividend with a 10.56% yield, although the payout ratio is 270%.
Windstream recently announced a management restructuring, including the expected elimination of 375-400 management positions, or approximately 3% of its total workforce. The company says the changes should result in annualized savings of $30M-$40M.
This is most likely in response to a lackluster earnings report recently. Even though Windstream is way down after a poor earnings report, I would avoid the stock until it proves itself next quarter. Avoid the stock for now.
Down days are good for identifying prospective investing opportunities. It makes it slightly easier to find the needles in the haystack, so to say. Four of the five stocks appear to be up for good reason and merit further due diligence. I would avoid Windstream until signs of a turnaround in the fundamentals emerge. There are better prospects to choose from currently.
Use this information as a starting point for your own due diligence and research methods before determining whether or not to buy or sell a security. If you choose to start a position in any stock, I suggest layering in at least a quarter at a time on a weekly basis to reduce risk and setting a trailing stop loss order to minimize losses.