These five stocks have made significant moves over the last month. Three are up approximately 20% while two are up around 10%. MEMC Electronic Materials Inc. (WFR) is up 30% in just the last week.
A few of these stocks just beat earnings estimates and all have had significant news out recently. Frontier Communications Corporation (FTR) is up 22% in the last month and nearly 60% since I got behind it in an article I wrote on May 22nd. The question is what to do with the position now? 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. 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 Monday's performance for the stocks.
Frontier Communications Corporation
Frontier is up 22.65% over the last month. Frontier is trading 29% below its 52 week high and has 4% potential upside based on the analysts' consensus mean target price of $5.00 for the company. Frontier was trading Monday at $4.82, up over 1% for the day.
Frontier has some fundamental positives. The company is trading for slightly over book value, 94% of sales and has a forward P/E of $17.85. Frontier pays a dividend with an 8.30% yield.
Frontier Communications second quarter EPS of $0.08 beat the streets estimates by $0.03. Revenue of $1.26B, down 5% year over year, beat by $20M. Free cash flow was $284.9M while net income came in at $75.3M. The company reiterated guidance for 2012 capital expenditures and free cash flow. Nomura has a Buy rating on the stock and is hiking its 2012 revenue forecast. Jefferies also has a Buy rating and notes Frontier's adjusted EBITDA margin hit a near-term high of 49.3%. Gabelli recently upgraded FTR to a Buy. Gabelli is encouraged by deteriorating access line losses, as well as synergies from the acquisition of Verizon wireline assets. Frontier has gapped up significantly. I am considering starting a position on any pullback. The stock is a buy.
JDS Uniphase Corporation (JDSU)
JDSU is up 22.89% over the last month. The company is trading 27% below its 52 week high and has 27% upside potential based on the analysts' consensus mean target price of $14.03 for the company. JDSU was trading Monday for $11.06, up 1.47% for the day.
Fundamentally, JDSU has some positives. The company has a forward PE of 13.83. JDSU is trading for approximately 2.39 times book value. EPS next year is expected to rise by 40.35%. UBS upgraded the stock in May from Neutral to Buy with a $14.50 price target. On Friday, Goldman Sachs (GS) initiated coverage on the company with a Buy rating.
According to a recent report by Paragon Financial Limited, growing demand for high-speed networks and smartphones offers significant opportunities for JDSU. According to Gartner Inc. smartphone shipments globally are expected to total 655 million in 2012, more than double 2010's total of 299 million. These developments bode well for JDSU. The stock is a buy. I am considering starting a position prior to earnings.
Level 3 Communications Inc. (LVLT)
Level 3 is up 15.33% for the last week. The company is trading 40% below its 52 week high and 28% below the analysts' consensus mean target price of $27.72 for the company. Level 3 was trading Monday for $21.74, down approximately 1% for the day.
Fundamentally, Level 3 has strong positives. Sales and EPS are growing quarter over quarter by 74% and 82% respectively. EPS next year is expected to rise by over 100%. Goldman initiated coverage on Level 3 with a Buy rating Friday stating they like the impact of the Global Crossing acquisition on the company's balance sheet and believes it could deliver "sustainable" free cash flow for the first time in its history.
The Global Crossing acquisition has filled several holes for the company. Firstly, the high debt to equity ratio that the bears clung to is gone. The combination of the networks has filled the gaps Level 3 had in regards to Latin America. The merger of the two company's sales and back office personnel will invigorate the organization by the injection of fresh blood, new ideas and streamlining of expenses.
Furthermore, Level 3 just signed a multi-year agreement to expand Time Warner Cable's (TWC) national network, to include supplementary essential infrastructure services. The companies have also agreed to exchange IP traffic between their respective backbone networks.
Level 3 already has positive free cash flow. With the strong tail winds provided by the emerging cloud based computing paradigm and proliferation of video streaming, the free cash flow and value of the assets will only increase boosting the share price. Level 3 is a buy.
Micron Technology Inc. (MU)
Micron is up nearly 10% over the past month. The company is trading 27% below its 52 week high and 47% potential upside based on the analysts' consensus mean target price of $9.87 for the company. Micron was trading Monday for $6.72, down almost 1% for the day.
Fundamentally, Micron has some positives. Micron is trading for approximately 86% of book value and 81% of sales. EPS next year is expected to rise by 117%. Stifel Nicolaus reiterated their Buy rating on the stock on June 21st with a $9.50 price target.
Micron CEO Mark Durcan predicts that depressed NAND flash memory prices will begin rising in early 2013. Durcan is less positive on DRAM. He expects DRAM prices to be soft near-term.
According to a recent Reuters report, a group of bondholders is offering to provide a loan of 30 billion yen ($383 million) to failed chipmaker Elpida Memory as part of a restructuring plan, aiming to counter a proposed takeover by Micron Technology Inc.
I thought this was a done deal. Micron will most likely experience some weakness Tuesday based on this report. I can't get fully behind the stock until this deal is finalized. Micron is a Hold for Now.
MEMC Electronic Materials Inc.
MEMC is up over 30%% in the past week. The company is trading 64% below its 52 week high and 95% potential upside based on the analysts' consensus mean target price of $5.07 for the company. MEMC was trading Monday for $2.59, down almost 3% for the day.
Fundamentally, MEMC has some positives. MEMC is trading for approximately book value and only 23% of sales. EPS next year is expected to rise by 312%. Insider transactions are up 133% over the past six months. There are many reasons for insiders to sell and only one to buy, the stock is going up.
MEMC is soaring because of a strong second quarter report. Revenue of $933.4M was up 20% year over year and up 78% quarter over quarter blowing past consensus by $184M. Non-GAAP EPS of $0.14 beat by $0.16. MEMC guided for wafer revenue to grow 3% to 8% quarter over quarter.
The stock has gotten killed over the last couple of years. I posit this could mark the bottom for the stock. I would hold off on starting a position until the stock has cooled off some after the huge pop.
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 in the stocks with huge runs. All the upside is not priced in to these stocks. I expect updated price targets on most of these stocks as new guidance and information 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 buy 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.