These five stocks are up an average of 10% in August. The lowest was Ford Inc. (F) at 3.43% while the top performing stock is Sirius XM Radio Inc. (SIRI) with a 15.35% return since the start of August. I have recommended all these stocks previously with the exception of Electronic Arts Inc. (EA).
A few of these stocks just beat earnings estimates and all have had significant news out since my last analysis. Sprint (S) has essentially doubled since I got behind it in an article I wrote on May 25th with the stock trading for $2.53. The stock is trading at $4.88 today which represents a 93% gain. The question is what to do with the position now that you have a double essentially. This is just as important as achieving the gain.
It is equally as hard to buy a stock when it is down as it to sell a stock when it is up. Sprint has doubled in a little over two months. Is this the beginning of a long-term move higher or has the rally peaked?
In the following sections, we will take a closer look at these stocks to determine if the prices are justified. We will perform a review of the fundamental and technical state of each company and analyze the trends to determine if it is time to buy or sell the stock or manage the position.
Additionally, we will discern if any headwinds or catalysts are on the horizon that may influence growth based on sector, industry or company specific developments. The following table depicts summary statistics and Thursday's performance for the stocks.
AK Steel Holding Corporation (AKS)
AK Steel is up 20% since July 30th. The company is trading 44% below its 52 week high and has 16% upside based on the analysts' consensus mean target price of $6.69 for the company. AK Steel was trading Thursday for $5.93, up over 3% for the day.
AK Steel has some fundamental positives. The company has a forward P/E of 8.98. AKS is expecting EPS to quadruple next year, although EPS for the next five years is expected to rise by only 5%. The company trades for 10% of sales.
AK Steel recently reported EPS of $0.10 for the second quarter which beat estimates by $0.05 and revenue of $1.54B which was in-line. AK also suspended its dividend to save the company $22M/year.
AK Steel said Monday it is increasing current spot market base prices for all carbon flat-rolled steel products by $40 per ton, effective immediately with new orders. This bodes well for the company's bottom line.
AK Steel has posted its fourth straight strong gain after Monday's news that it will hike spot prices on flat-rolled steel products. CRT Capital raised its rating on the stock to Buy from Fair Value with a $7 target price. The stock may see some short term downside after such a swift rise. I am looking to reestablish a position on a pullback. AKS is a Gold Medal winner.
Electronic Arts Inc.
Electronic Arts is up nearly 11% since the start of August. The company is trading 50% below its 52 week high and has 42% upside based on the analysts' consensus mean target price of $17.05 for the company. Electronic Arts was trading Thursday for $13.01, up slightly for the day.
Electronic Arts has some fundamental positives. The company has a forward P/E of 10.35. Electronic Arts is expecting EPS to grow 19% next year. EPS for the next five years is expected to rise by a healthy 17%. The company trades for 1.61 times book value and for less than 10% of sales.
Finally, insider ownership is up 47% over the past six months. There's an old adage on the Street regarding insider buying, there are many reasons insiders sell stocks, but only one reason they buy. They know it's going up. EA's stock just broke out of a well-defined yearlong downtrend. I see this as an opportunity to start a position at this level.
Electronic Arts' fiscal first quarter stock buyback plan will incorporate nearly 1/7 of outstanding shares at current levels. FQ2 guidance was slightly conservative, which is a good thing.
Battlefield 3 Premium now has 1.3M subs. I spoke with one of my close friends who is a hardcore gamer and subscribes to Battlefield 3 Premium. His gamer handle is TXRELENTLESS, also known as Doug Chapman. He stated he was reluctant to pay the additional fee for premium membership at first, but saw so many early adopters he converted and was pleasantly surprised. The word of mouth amongst players is positive. EA has done a great job of keeping subscribers engaged with games between major releases. I like the break out above the 50 day sma. This could mark the bottom for the stock. EA has earned a Gold Medal.
Ford Motor Co.
Ford is up nearly 4% in August. The company is trading 28% below its 52 week high and has 46% upside based on the analysts' consensus mean target price of $13.69 for the company. Ford was trading Thursday for $9.39, slightly for the day.
Fundamentally, Ford has several positives. The company has a forward P/E of 6.15. Ford is trading for 7.57 times free cash flow and 2.37 times book value. EPS next year is expected to rise by 18.75%. The company pays a dividend with a yield of 2.14% and has a PEG ratio of 0.26 and a net profit margin of 14.06%.
Goldman Sachs recently stated Ford shares haven't priced in a coming margin re-acceleration in the second half of 2012. Goldman raised its EPS estimates for the next three years. The firm sees capacity additions in North America which should alleviate constraints, share and pricing benefits from some new products, and easier commodity and hedging comparisons.
Ford is developing a pickup truck with a largely aluminum body. The drastic redesign will help meet stringent federal fuel-economy targets. The shift to the lighter metal will cut the weight of its F-150 truck by about 700 pounds, according to Ford executives.
Ford says new plants in Asia will be able to manufacture up to 7 different models as its adds flexibility to its factories in the region. The automaker could see the Asia Pacific Africa region contribute close to a third of all its global sales by the middle of the decade. If Ford breaks through resistance at $9.50 you could see significant continued upside. I like the stock here, but it will be a slow grind higher. Ford gets the Bronze Medal.
Sprint Nextel Corp.
Sprint has nearly doubled over the past two months and is up over 7% just in August. Sprint is trading above its consensus estimates and its 52 week high. Sprint was trading Thursday for $4.80, up 3% for the day.
Fundamentally, Sprint has some positives. Sprint is trading for 1.5 times book value and only 40% of sales. EPS next year is expected to rise by 37.2%. Insider ownership is up 45% over the past six months.
Sprint is firing on all cylinders and blew away second quarter earnings. I sold out of my position and am looking for a pullback to jump back in. If I was a current shareholder, I would trim my position back based on the size of my gains to ensure a balanced portfolio.
Sprint is adding to its recent gains after disclosing strategy chief Keith Cowan will be leaving the company as of Sep. 30. The language suggests Cowan may have been kicked out. Back in March, the WSJ reported Sprint shareholders were concerned Cowan's "tough style" wasn't going over well with potential partners.
I am looking to pick up shares at $4.50. Sprint gets a Gold Medal. The stock is a buy; even so wait for a pullback to get in.
Sirius XM Radio Inc.
SIRI is up over 15% in August. The company is trading 5% below its 52 week high and has 8% potential upside based on the analysts' consensus mean target price of $2.60 for the company. SIRI was trading Thursday for $2.40, down over 3% for the day.
Fundamentally, SIRI has some positives. SIRI has a forward P/E of 22 and trades for 22 times free cash flow. EPS next year is expected to rise by 37.50%. Quarter over quarter sales and EPS are up 11% and 22% respectively. SIRI's TTM ROE is 80% and the company's net profit margin is 14.75%.
Sirius answered its critics with a Q2 earnings beat and improved outlook for FY12. Sirius added 622,042 subscribers as strong auto sales helps lift totals. A churn rate of 1.9% was unchanged from a year ago. The company reported record free cash flow of $230M at the end of the period. For full-year 2012, Sirius sees net subscriber growth of 1.6M and revenue close to $3.4B.
Though subscriber growth looks promising and free cash flow is up, the firm failed to mention any news of a dividend or new buyback. This could become a point of contention for shareholders. I like the stock here on a pullback to $2.20. SIRI gets a Gold Medal.
The Bottom Line
These five companies are all up over the past few weeks, some considerably more than others. Nonetheless, not even a rocket goes up in a straight line. Look for a pullback to start a position. All the upside is not priced in to these stocks. I expect updated price targets on most of these stocks as new guidance gets digested.
No one ever made a dime chasing stocks. Wait for good opportunity then buy in. I posit all these stocks have further upside. When starting a position, you must analyze the stock and decide if the reward is worth the risk. If you by on a pullback, typically your risk/reward ratio will improve dramatically.
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 10% at a time on a weekly basis to reduce risk and setting a 5% trailing stop loss order to minimize losses further if you wish.