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Justin Weinstein's  Instablog

Justin Weinstein
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I am a passionate business thinker who loves analyzing companies from a micro, macro, and leadership perspective. My goal is to give viewers both fundamental and technical analysis, so they can make more informed investment decisions and ultimately gain one new perspective on the company at hand.
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  • Why Google And Apple, The Market's 2 Most Stereotypical Stocks, Are Cheap By The Numbers

    The past year has been an exceptional time for the US markets. Only 3 years ago, America was tanking into a near depression and now we are in a period of decreasing unemployment rates, increasing confidence, and a want for my risky assets by investors. High Tower Advisors Michael Bapis reported to CNBC, "There's more of an appetite for risk… People were so conservative last year. Now there's an appetite for risk." Though investors may clamor to the newest companies on the street, the two most stereotypical stocks on the market are poised for exceptional growth both on a corporate level and on a stock price level, due to low valuations. This has created an environment where Google (NASDAQ:GOOG) and Apple (NASDAQ:AAPL) are trading at both low price to earnings (NYSE:PE), and price/earnings to growth rate (NYSE:PEG) values. The numbers below speak for themselves in proving that GOOG and AAPL are poised for continued growth on the heels of obtaining more realistic market valuations.

    GOOG and AAPL are cheap by the numbers:

    GOOG:

    Forward PE Ratio: 11.76 (sector average is 16.25)

    5-Year Expected PEG Value: .74

    Trading Range, Past 12 Months: $473.02-642.96

    Five-Year Chart:


    (Yahoo Finance)

    • Fundamentals: In Larry Page's earnings report a few weeks ago, he reported revenue increasing by 25% over last year's fourth quarter results as well as delivering $10 billion in sales for the first time. Page stated, "I am super excited about the growth of Android, Gmail, and Google+, which now has 90 million users globally - well over double what I announced just three months ago." The type of growth that has been seen in Google+ is evidence of the Mecca GOOG has become. GOOG Android platform represents 47% of the current mobile market share and the core of GOOG business is operating at exceptional levels. As evidenced by the strong PEG value of .74, the company is undervalued and has the potential to grow in value and market share over the coming years and mature to its real market-value.

    AAPL:

    Forward PE Ratio: 9.71 (sector average is 16.25)

    5-Year Expected PEG Value: .56

    Trading Range, Past 12 Months: $310.50-458.99

    Five-Year Chart:


    (Yahoo Finance)

    • Fundamentals: Apple represents an incredible stock story of a company that has been to come up with idea after idea and erode the market share of its largest competitors year after year. When AAPL reported earnings last months, the Los Angeles Times reported, "Apple's quarterly profit more than doubled and revenue surged 74% to a record $46.3 billion as the company sold more iPhones, iPads and Mac computers than in any quarter in its history." This level of performance warrants a PE multiple of higher of 9.71 and a PEG value closer to 1 than .5. Only 5 years ago, AAPL traded at a PE ratio of 39.1, marking the steady decline in PE the company has traded at. This marks an exceptional opportunity for investors to invest in one of America's strongest and most promising companies at a low valuation. There is exceptional room for stock-price growth from these numbers.

    Conclusion: Do not allow the seemingly high stock prices to keep you away from these two companies that are, by the numbers, undervalued and overperforming. Both GOOG and AAPL represent exceptional opportunities for growth. Just because they are the stereotypical "two" does not mean they are unworthy of your money.The aforementioned numbers speak for themselves...

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: GOOG, AAPL
    Feb 07 5:07 PM | Link | Comment!
  • Is it time to buy Tesco?

    Tesco, one of the worlds largest food retailers, announced last week that their British stores experienced a 2.3% drop in sales over the six weeks ending January 7th. The company also warned investors that profit was shrinking, in large part due to its international business weighing on the whole company. This news sent shares of Tesco sharply lower.  


    (CNBC)

    The disappointing news came as a surprise to the market due to Tesco long being seen as one of the best operators in the world. The stock took a 16% hit the day the news was released. This type of drop is not uncommon among retailers operators when profit turns from good to bad. This is because retailers often have a difficult time turning both sales and profit around. It is a vicious cycle because when both sales and profit are in decline, a retailer cannot lower prices to bolster sales and vise versa cannot raise prices to bolster profit. 

    The question of whether the stock sold off too much this past week lies in whether Philip Clarke, Tesco President can follow through with his recent statement: "I feel very determined... This isn't going to kill us. It's going to make us stronger." The inherent problem with the company is that they over extended themselves and now the core of their business, Tesco Britain, is failing. Tesco felt that other nations like China, Brazil, and Malaysia would present a tremendous growth opportunity. At the same time they were growing the footprint of their company, they were growing the footprint of their stores. Electronics and general merchandise began taking square footage away from their foundation: grocery. Wal Mart (NYSE:WMT) began on this track of getting away from the core of their business about five years ago. Ever since, customers have been complaining about price and selection. This has led to Wal Mart loosing footing in the United States. 

    For Tesco, this is the beginning of a period of profit minimization to strengthen their British position on grocery. Although profits will be depressed over the coming year or so, Tesco is in a terrific financial position to prosper into the next decade. 

    Conclusion: Stay away from buying Tesco until clarity arises in the coming quarters of their long-term position in the marketplace. If you have time to wait out the storm, buy Tesco now. The 4.65% dividend can help offset the bumpy ride to come.


    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Jan 17 1:38 PM | Link | Comment!
  • Should you buy SuperValu in their sales slump?
    SuperValu SVU

    • Market Cap: 1.6 Billion 
    • PE Ratio: -2.9
    • 1 year Change: -6.1%
    • Dividend Yield: 4.97%

    SuperValu, a large scale grocery operator, reported third quarter losses of $750 million. This loss was partially do to good will accounting changes, but is an indication of the companies inability to turnaround in the midst of rising competitionSVU has had 16 quarters of declining sales.

    What came as a surprise to the market was that a price tag of roughly $907 million would be attributed to Craig Herkert's attempt to turn around the depressed retailer. His actions to minimize costs within distribution, invest in strong formats like Save-A-Lot, deal with extremely high costs attributed to debt levels, and give individual retail stores more buying power has resulted in losses beyond what analysts where expecting. Sherry Smith, the companies CFO commented that the "efforts will help to improve customer perceptions of the relative value offered by our traditional stores." Though this may have a level of validity, retailers like Target, Wal Mart, and Whole Foods are far ahead of SuperValu in nearly every aspect of their business

    If other retailers are any indication of the difficulty SuperValu will face, they are in for a bumpy and downhill path. JCPenny and A&P, two companies that were thriving ten years ago, face similar challenges to SuperValu. They have both been unable to turn around the customer perception that Sherry Smith speaks of.

    SuperValu
    illustrates a central point about investing in retail turnaround stocks: they are painful and in many cases impossible due to customer perceptions and the level of debt incurred from poor sales in a "penny industry." Supervalu is on a current trajectory to continued sales declines unless Craig Herkert knows something we don't. I do not believe this is a risk worth taking

    Conclusion: Do not invest in SVU until a turnaround is underway.
     
    This will be indication by several quarters of sales growth

    Three years of Constant Decay





    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Tags: SVU, JCP
    Jan 16 3:08 PM | Link | Comment!
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