Now that the earnings season is behind us, it is time to get back to the basics. It is time to review some names that may have been a little too volatile a few weeks ago, but have settled down. Today, I am going to examine five names that I've focused on in the past, that are worth looking at again. We'll discuss recent news, look back at some earnings reports, and decide whether or not now is the time to enter.
Intuitive Surgical (ISRG)
After its last earnings report, and subsequent drop in stock price, I called Intuitive a tremendous buying opportunity. At that point, the stock was at $475, and we are now at $505. While that might cause some pause, remember that the 52-week high is roughly $595, and this stock is still down about $50 since the earnings report, which was much better than analyst estimates, again.
Intuitive makes surgical robots and accessories, and since some of the tools used in these procedures only last for a limited time, the company benefits not only from more sales of robots, but from more procedures being done as well.
This company has tremendous financial flexibility and is buying back stock currently. It is the leader in its industry with basically no real competition. It is still expected to grow revenues at about a 20% clip both this year and next, with earnings per share growing nicely as well (plus the buyback will help). Skeptics have said the valuation doesn't fit, but this name is only trading at 29 times next year's expected earnings. Given that this company has consistently beat estimates, one would expect that the current estimate for 2013 EPS of $17.44 is way too low. When all is said and done, I expect between $18 and $20 in earnings. Given that a fair valuation for the name is 30 to 35 times earnings, that means there is plenty of upside left in the name. I would recommend that investors could start a position here, and build it up if this name goes back to the $460 to $480 range.
The rare earth mineral processor and producer has been one of the most disappointing names in the past year or two. The company has had a hard time hitting revenue and earnings estimates, which has constantly knocked down the stock, and knocked down analyst estimates. For example, 2013 earnings estimates called for a profit of nearly $4 per share just a few months ago. Now, analysts are looking for a profit of just $0.58, and that could go to a loss if the trend we have seen recently continues.
Molycorp also has seen a huge need for additional capital. The company took on about $650 million of debt to finance its purchase of Neo Materials, and a recent debt and stock offering has sent shares to new 52-week lows. For investors looking at this name for the first time, I would recommend that they stay away from Molycorp for now. This company needs to finally meet some growth forecasts, and the potential for further equity dilution is always out there. Don't forget, more debt means more interest costs, and that means lower profits.
The Chinese search giant has been hit recently following worries that Qihoo's (QIHU) new search engine may be a serious competitive threat. Baidu shares have fallen nearly $20 in the past week to $115, and that's only after rallying off the near $110 low.
Baidu is looking into the threat from Qihoo, but for now, the fear seems to have taken its toll on investors. Analysts have yet to weigh in regarding actual revisions in their estimates, with varying opinions as to the seriousness of the threat.
As for my opinion, I'm not 100% sure that this is a total blow to Baidu just yet, but I need to hear what Baidu has to say with their next earnings report. For now, I think Baidu's shares could remain under some pressure, or at least remain neutral until their is more clarity on the issue. I wouldn't be running out to short the name right now, but I wouldn't be definitely buying on the dip either.
Amazon hit a new milestone on Friday. Shares not only rose to a new 52-week high, but the trailing price to earnings ratio crossed the 300 level. You are now paying more than three dollars for every penny that Amazon earns per share.
That multiple is likely to keep expanding. Amazon earned $0.14 per share in last year's third quarter, and their guidance for this year's Q3 indicated an operating loss is very likely, meaning an overall loss is possible as well. Current Amazon estimates call for an eight cents per share loss. Should Amazon lose that much, the trailing P/E would jump to more than 416 based on current levels. Amazon may be launching new versions of the Kindle Fire next month, so that launch may be the reason why they could lose some money this quarter.
Investors still seem willing to pay this high multiple, as long as Amazon can continue to produce solid revenue growth. However, should Amazon actually lose money for the quarter, that could change some opinions. Even analysts are starting to get rather iffy, since the average price target is just $262, implying that Amazon won't rise that much from Friday's close of $245.
I called Priceline a great buy at $563 when it dropped after a lousy earnings report, but the $30 rise since has tempered my feelings on the travel site.
Priceline reported earnings per share that beat estimates, but revenues were a bit light. Priceline noted that conditions in Europe seemed to be deteriorating, which resulted in guidance being well below expectations, much more so than the usual conservative guidance we see from them.
At this point, I'd like to see analyst expectations come down a little further before I can recommend this name. At current levels, I think there is room for another disappointment when Priceline next reports. Priceline guided revenue growth in a range of 9% to 15%, and analysts are still expecting 13.7% growth. Should that figure come down into the 10% to 12% range, I'd be a little more optimistic about a Priceline beat. Now, Priceline hasn't had too much trouble beating earnings estimates, so I'm not too concerned with analyst estimates of $11.78, versus Priceline's guidance for $11.10 to $12.10, a midpoint of $11.60. Sure, an analyst consensus in the $11.25 to $11.50 range should set up for a more likely beat, but I'm not as worried on the earnings per share front with this company.