Using The Applied Finance Group's (AFG's) Value Expectations interface we have provided an analysis of the expectations embedded in the stock prices of some of the top performers in the S&P 500 year to date (excluding financials) to see which companies have the lowest expectations for sales growth (VE Sales Growth) relative to what the company has been able to deliver historically (5 Year Median Sales Growth).

AFG’s Value Expectations interface provides clients a platform to better understand economic profitability, and at the same time understand the performance a company must deliver to justify its current stock price. By understanding the embedded expectations a company must deliver to justify their current trading price, clients can develop a “hurdle rate” to quickly determine if the company’s expectations are rich or low. Take, for example, the typical company during the tech bubble: the expectations that were priced into the average tech stock far exceeded what it could realistically deliver. For this reason, AFG identified the technology sector as overvalued, as well as potential torpedoes such as Cisco (CSCO), whose expectations were unrealistically high.

With 10 months of 2009 behind us and the holiday season approaching, we decided to highlight some of the companies that have driven the market rebound in 2009. The companies in the list below have earned the largest total returns thus far year-to-date in the S&P 500.

Even though these companies have done well, one should be careful of the stocks that have run up and are now overvalued. Listed below are the top returners in the S&P 500 (excluding financials) and how these companies rank according to The Applied Finance Group’s valuation model.

With 3 Quarters of 2009 now in the books, we thought it would be timely to provide a list of the top 20 performers in the S&P 500 so far this year to give investors an idea of which stocks have been doing well. Along with the list of top 20 performing companies, we have also provided a breakdown of the average return by sector as defined by AFG vs. the entire S&P 500 index to show which sectors have been leading the way.

Also by using The Applied Finance Group’s (AFG's) research and valuation model we have provided further analysis on 4 of the top performing companies, 2 that we find attractive going forward and 2 that we find unattractive, based on valuation attractiveness, expected improvement in economic profitability and the overall investment attractiveness, which is based on various criteria AFG uses when identifying long/short opportunities.

The average year to date change of stocks in the S&P 500 is 33.27%, even though the index itself is up just 16.54% YTD. The average estimated P/E ratio for next year for stocks that actually have earnings in the index is 19.47. Twenty-six stocks in the S&P 500 are expected to lose money over the next year.

Below we provide a list of S&P 500 stocks that are up more than 100% year to date along with their estimated P/E ratios. As shown, there is a pretty wide variation in valuations of the best performing stocks year to date, with some having low P/Es and some having high or negative P/Es. Micron (MU), Advanced Micro (AMD), Sun Micro (JAVA), Sprint (S), and Office Depot (ODP) are the five stocks up more than 100% in 2009 with negative estimated P/Es. Other strong performing stocks with high valuations include THC, F, SNDK, MOT, and MWV. XL Capital has the lowest P/E estimate of the stocks listed below at 7.40. It is up 370% year to date. Genworth (GNW) is up 325% with a P/E estimate of 11.06, and WDC is up 218% with a P/E estimate of 9.76. Other stocks on the list with a ratio below 20 include FCX, GT, EXPE, WYN, MEE, JWN, GS, CTSH, and LIFE.

Back in late February and early March, we made several references to our Bespoke Premium clients that even though the S&P 500 was trading down to new lows, the number of stocks making new lows wasn't expanding, which is very positive for the market. As shown in the chart below, at the October low, 84% of the stocks in the S&P 500 made a new low. Then in November, 63% of stocks hit new lows. At the March low, however, only 36% of the stocks in the S&P 500 made new lows.

click to enlarge

Demand for lithium is on the rise, as hybrid car batteries and portable electronic devices often require rechargeable lithium batteries. Analyst Merrill McHenry, MBA, CFA, in this email interview, gives The Energy Report readers the lowdown on automakers racing to see how many cars they can get into the market, and the importance of project economics in looking at investment opportunities. Some excerpts:

The Energy Report: Merrill, can you comment on how the recession is impacting the price of lithium?

With the S&P 500 solidly in the black in 2009, there are many more stocks in the index that are up year to date than down. It's been awhile since we could say that. The count is currently 369 up and 131 down. There are 73 stocks in the S&P 500 that are up more than 50% year to date, and there are 15 that are up more than 100%. Tenet Healthcare (THC), XL Capital (XL), and Ford Motor (F) are the only three stocks up more than 200% year to date.

Below are the 30 best performing S&P 500 stocks so far in 2009. Western Digital (WDC) ranks 4th behind THC, XL, and F with a gain of 168.5%. Goldman Sachs (GS) and Apple (AAPL) are probably the most popular names on the list with gains of 94% and 92.6% respectively. Other notables include Whole Foods (WFMI), Nordstrom (JWN), Starbucks (SBUX), Intuitive Surgical (ISRG), Corning (GLW), and Morgan Stanley (MS).

As oil sold off over 6% Tuesday, I was searching for some companies to buy on the dip. I decided to look at opening the position with the buy/write option strategy, as this would give me a return if oil rallies, as well as protect my position to the downside if oil continued to slide.

As recently stated on OptionMaestro.com, I believed oil would peak in early to mid July. However if we keep hearing of these "green shoots" and the stock market continues to rally, I believe oil could continue to rally as well, and as late as October in my opinion. I don't think $75 a barrel oil is out of the question, especially on the back of a weak dollar.

Q2 2009 Earnings Call

July 29, 2009; 9:00 am ET

• MSFT, Yahoo reach search deal. At long last, sources say Microsoft (MSFT) and Yahoo (YHOO) have reached a search deal and will announce it within the next 24 hours. Yahoo will use Microsoft's Bing search-engine technology on its own sites, including the Bing brand, and will supply search text ads on its sites and some of Microsoft's. The deal appears to be structured as a revenue share with no upfront fee, with Yahoo taking 110% the first two years and 90% in the third. The deal is on a smaller scale than previously envisioned, but both Microsoft and Yahoo are hoping that a combined attack will be more effective against Google (GOOG). UPDATE: Microsoft, Yahoo officially announce the deal. Premarket: MSFT +0.8%, YHOO -5.8% (8:30 ET).
• Say-on-pay makes headway. A congressional committee approved a bill that would put new restrictions on executive pay, giving shareholders the right to cast non-binding annual votes on executive compensation and special pay packages, and enabling regulators to ban pay structures that incentivize inappropriate risk-taking. The House of Representatives is expected to vote on the measure on Friday.
• Santander plans bank IPO. Banco Santander (STD) will spin off its Brazilian unit in an initial public offering that could raise at least $3B, creating one of the biggest publicly listed banks in Latin America. The listing will likely occur in the next three months.
• Nasdaq backs flash trading ban. As the debate on flash trading heats up, Sen. Charles Schumer said the Nasdaq Stock Market supports a ban on the trading practice and only 'reluctantly' started offering flashes early last month. Meanwhile, the SEC was apparently investigating the practice even before Schumer's letter calling for action, and may move to ban flash trading 'within the next couple of weeks.'
• Sprint buys Virgin Mobile. Sprint (S) agreed to buy Virgin Mobile USA (VM) for $5.50/share ($483M) in an all-stock deal, and will retire $205M of Virgin's debt. Sprint already owns 13.1% of Virgin, which offers cheap prepaid wireless plans. Sprint is hoping the cheaper, non-contract service will help stem a tide of customer defections.
• IBM buys software maker. IBM (IBM) will buy SPSS for $1.2B, a 42% premium on SPSS' closing price on Monday. The deal, the latest in a series of IBM acquisitions, expands IBM's software portfolio and is a further sign of improvement in the technology sector deal market. The deal should be completed by year-end.
• NJ sues Merrill. New Jersey is suing Merrill Lynch, alleging the firm sold the state's investment division $300M in preferred stock based on misleading information. New Jersey officials said if the state's investment unit "had known Merrill’s true financial condition, it would not have participated in the January 2008 offering and would not have agreed to a conversion in July 2008."
• GM returns to car loans. After a year-long hiatus, General Motors plans to get back into the car-leasing business and is said to be eyeing August 1 as its re-entry date. GM has said credit availability is still hurting auto sales, and that its exit from the leasing business forced many customers to defect to other automakers. Rivals including Ford (F) and Toyota (TM) have scaled back their leasing but haven't pulled out of the business entirely.
• Apple bars Google Voice app. Apple (AAPL) banned two iPhone applications based on Google Voice (GOOG) as the rivalry between the two tech giants grows. An Apple representative said some of the applications offered functions too close to what the iPhone already provides.
• American Air expects alliance approval. American Airlines (AMR) said it expects to win approval by October to form an alliance with British Airways (BAIRY.PK) and Iberia. The airline is betting on intra-alliance competition and global partnerships to help it survive.
• KKR preps Dollar General IPO. Kohlberg Kravis Roberts is reportedly in advanced preparations for an initial public offering of Dollar General and will also serve as one of the lead underwriters of the deal. It marks the first time KKR will underwrite one of its own IPOs as it tries to strengthen its reputation ahead of its own planned listing.
• SEC files fraud charges. The SEC filed suit against four individuals, accusing them of fraud in connection to over $197M raised from at least 900 investors nationwide which was funnelled to a commercial real estate venture. The SEC contends the defendants made "material misrepresentations to investors," including false claims about the use of the funds and the safety of investments.
• Home prices improve (.pdf). The S&P/Case-Shiller 20-City Home Price Index was -17.1% in May vs. last year, narrower than last month's 18.1% drop, and the fourth monthly improvement in a row as "the pace of descent in home price values appears to be slowing." The 0.5% month-on-month increase was the first uptick in three years.
• Consumer confidence. Conference Board's July Consumer Confidence came in at 46.6 vs 49.0 consensus, down from 49.3 in June. The decline was aggravated by a worsening job market, as the percentage of consumers claiming jobs are hard to get rose sharply. According to ABC's poll, consumer confidence registered at -47, up from last week's -50 and breaking the -50 threshold for the first time since mid-June. Twenty-six percent of Americans say it's a good time to buy things, up from 22% last week, while 44% rate their personal finances positively.
• Retail sales. Chain store sales fell 1.6% in the first three weeks of July, Redbook said, worse than the -0.9% expected. According to ICSC, weekly sales were up 1%, but July sales will be off around 5.5% Y/Y with "leaner clearance than last year hurting the reported sales pace."

Earnings: Wednesday Before Open

• American Tower (AMT): Q2 EPS of $0.14 misses by $0.03. Revenue of $423M (+7.5%) vs. $414M. (PR)
• ArcelorMittal (MT): Q2 net loss of $792M ($0.57/share) vs. +$5.84B a year ago and vs. consensus of +$336M. Sales of $15.2B (-60%). Sees Q3 Ebitda of $1.4-1.8B. Says it achieved annualized fixed-cost cuts of $8.4B by the end of Q2. Shares -4.2% in Amsterdam. (Bloomberg)
• Arrow Electronics (ARW): Q2 EPS of $0.31 beats by $0.02. Revenue of $3.4B (-22%) in-line. (PR)
• Brookfield Properties (BPO): Q2 FFO of $0.38 beats by $0.03. Revenue of $619M (-13.5%) vs. $527M. (PR)
• Coca-Cola Enterprises (CCE): Q2 EPS of $0.67 beats by $0.16. Revenue of $5.9B (-0.4%) vs. $6B. Issues upside EPS guidance for FY '09 of $1.44-1.49 vs. $1.33 consensus. Shares +5.9% premarket (8:00 ET). (PR)
• EQT Corp. (EQT): Q2 EPS of $0.20 misses by $0.03. Revenue of $238M (-29%) vs. $236M. (PR)
• General Dynamics (GD): Q2 EPS of $1.61 beats by $0.04. Revenue of $8.1B (+11%) in-line. Shares +2% premarket (8:00 ET). (PR)
• Hecla Mining (HL): Q2 EPS of $0.00 beats by $0.02. Revenue of $75M (+10.5%) vs. $53M. Shares +2% premarket (8:20 ET). (PR)
• Hess (HES): Q2 EPS of $0.31 beats by $0.30. Revenue of $6.8B (-42%) vs. $7.4B. Shares +1.6% premarket (8:00 ET).(PR)
• Honda (HMC): FQ1 net profit fell 96% to ¥7.56B ($79.9M), vs. consensus of -¥56.4B, and vs. a FQ4 net loss of ¥186.1B. Sees full-year earnings of ¥55B, down 60% from last year, but 38% higher than its previous outlook of ¥40B. Revenue of ¥2T (-30%). (WSJ)
• Hospira (HSP): Q2 EPS of $0.73 beats by $0.13. Revenue of $957M (+6.1%) vs. $878M. (PR)
• IAC/InterActiveCorp (IACI): Q2 EPS of $0.02 misses by $0.07. Revenue of $340M (-4%) vs. $335M. Shares +0.5% premarket (8:10 ET). (PR)
• Jones Apparel Group (JNY): Q2 EPS of $0.29 beats by $0.22. Revenue of $804M (-3%) vs. $777M. Shares +9.5% premarket (8:10 ET). (PR)
• MeadWestvaco (MWV): Q2 EPS of $0.22 vs. consensus of $0.01 (may not be comparable). Revenue of $1.4B (-16%) vs. $1.5B. (PR)
• Medco Health Solutions (MHS): Q2 EPS of $0.69 beats by $0.04. Revenue of $14.9B (+17%) vs. $14.5B. (PR)
• Moody's (MCO): Q2 EPS of $0.43 beats by $0.03. Revenue of $451M (-7.6%) vs. $427M. (PR)
• New York Community Bancorp (NYB): Q2 EPS of $0.16 vs. consensus of $0.25 (may not be comparable). Non-performing assets of $341.6M at the end of June, representing 1.04% of total assets, vs. $176.8M, or 0.55% of total assets, at the end of March. (PR)
• Nissan (NSANY): FQ1 net loss of ¥16.5B vs. a net profit of ¥52.8B a year ago, and vs. consensus of -¥108.5B. Last quarter Nissan posted a ¥276.9B loss. Sales of ¥1.51T (-36%). Still sees full-year loss of ¥170B. Sources say Nissan will announce today a new China plant capable of producing 240,000 vehicles/year. (WSJ)
• Penske Automotive Group (PAG): Q2 EPS of $0.22 beats by $0.07. Revenue of $2.3B (-30%) vs. $2.4B. (PR)
• Praxair (PX): Q2 EPS of $0.96 misses by $0.03. Revenue of $2.3B (-26%) vs. $2.1B. (PR)
• Qwest Communications International (Q): Q2 EPS of $0.13 beats by $0.03. Revenue of $3.1B (-9%) in-line. (PR)
• SAP AG (SAP): Q2 net profit of €423M vs. €408M a year ago and consensus of €385M. Revenue of €2.58B (-10%) vs. €2.64B. Software revenue of €543M (-40%) vs. consensus of €556M. Operating margin 27.7%. Sees full-year operating margin of 25.5-27%, up from previous guidance of 24.5-25.5%. Shares +1.8% in Frankfurt. (DJ)
• Sealed Air (SEE): Q2 EPS of $0.34 in-line. Revenue of $1B (-20%) vs. $1.1B. (PR)
• Scotts Miracle-Gro Company (SMG): FQ3 EPS of $2.32 beats by $0.07. Revenue of $1.3B (+9%) in-line. (PR)
• Sprint Nextel (S): Q2 EPS of -$0.13 misses by $0.11. Revenue of $8.1B (-10%) in-line. (PR)
• Wyndham (WYN): Q2 EPS of $0.41 beats by $0.04. Revenue of $920M (-19%) vs. $917M. Issues downside Q3 EPS guidance of $0.53-0.57 vs. $0.58 consensus. Issues in-line guidance for FY '09, sees FY '09 revenue of $3.5-3.9B vs. $3.6B consensus.

Earnings: Tuesday After Close

• American Financial Group (AFG): Q2 EPS of $1.09 beats by $0.16. Revenue of $1.1B (+8%) vs. $815M. (PR)
• Brandywine Realty Trust (BDN): Q2 FFO of $0.56 beats by $0.10. Revenue of $146M (-3%) in-line. Raises full-year FFO to $1.75-1.80 from $1.60-$1.74, vs. $1.71. (PR)
• Carter's (CRI): Q2 EPS of $0.23 beats by $0.17. Revenue of $318M (+5%) vs. $300M. Sees Q3 EPS growth in mid to high single digits. (PR)
• Chicago Bridge & Iron (CBI): Q2 EPS of $0.45 beats by $0.05. Revenue of $1.2B (-14%) in-line. (PR)
• Dreamworks Animation SKG (DWA): Q2 EPS of $0.30 beats by $0.14. Revenue of $132M (-7%) vs. $117M. (PR)
• Fidelity National Information Services (FIS): Q2 EPS of $0.42 beats by $0.06. Revenue of $835M (-4%) vs. $832M. Raises full-year EPS view to $1.71-1.75 vs. $1.62. (PR)
• FMC Technologies (FTI): Q2 EPS of $0.84 beats by $0.23. Revenue of $1.1B (-6%) in-line. Sees full-year EPS of $2.55-2.65 vs. $2.36. (PR)
• Hertz Global Holdings (HTZ): Q2 EPS of $0.12 beats by $0.06. Revenue of $1.8B (-23%) in-line. (PR)
• Integrated Device Technology (IDTI): FQ1 EPS of $0.02 beats by $0.02. Revenue of $116M (-38%) vs. $113M. (PR)
• Life Technologies (LIFE): Q2 EPS of $0.79 beats by $0.13. Revenue of $833M (+126%) vs. $803M. Sees full-year EPS of $2.70-2.80 vs. $2.63. (PR)
• Massey Energy Company (MEE): Q2 EPS of $0.24 beats by $0.08. Revenue of $698M (-16%) vs. $661M. (PR)
• McKesson (MCK): FQ1 EPS of $1.06 beats by $0.20. Revenue of $27B (flat) in-line. (PR)
• Nalco Company (NLC): Q2 EPS of $0.11 misses by $0.13. Revenue of $913M (-14%) vs. $950M. (PR)
• Norfolk Southern (NSC): Q2 EPS of $0.66 beats by $0.02. Revenue of $1.9B (-33%) vs. $2.1B. (PR)
• Panera Bread Company (PNRA): Q2 EPS of $0.65 beats by $0.01. Revenue of $331M (+3%) in-line. Company targets 15-20 new unit openings in Q3. (PR)
• Parametric Technology (PMTC): FQ3 EPS of $0.03 misses by $0.13. Revenue of $226M (-17%) vs. $223M. Sees Q4 EPS of $0.25-0.30 vs. $0.31. (PR)
• Psychiatric Solutions (PSYS): Q2 EPS of $0.63 beats by $0.07. Revenue of $471M (+6%) vs. $469M. Reaffirms full-year EPS of $2.24-$2.32 vs. $2.23. (PR)
• Questar (STR): Q2 EPS of $0.54 in-line. Revenue of $613M (-26%) vs. $525M. (PR)
• SBA Communications (SBAC): Q2 EPS of $0.25 beats by $0.42. Revenue of $136M (+22%) vs. $137M. (PR)
• STMicroelectronics (STM): Q2 EPS of -$0.36 misses by $0.04. Revenue of $2B (-16%) vs. $1.8B. Sees Q3 revenue of $2.07B-2.27B vs. $2.02B. (PR)
• Superior Energy Services (SPN): Q2 EPS of $0.35 misses by $0.09. Revenue of $361M (-21%) vs. $392M. (PR)
• TECO Energy (TE): Q2 EPS of $0.29 beats by $0.04. Revenue of $825M (-7%) vs. $864M. (PR)
• THQ (THQI): FQ1 EPS of $0.10 beats by $0.18. Revenue of $244M (+77%) vs. $203M. Sees Q2 revenue of $85M-95M vs. $123M. (PR)
• Total System Services (TSS): Q2 EPS of $0.27 in-line. Revenue of $415M (-4%) vs. $401M. Sees full-year decline in revenues of 3-5% and in net income of 11-13%. (PR)
• Trimble Navigation (TRMB): Q2 EPS of $0.31 misses by $0.01. Revenue of $290M (-23%) vs. $300M. Sees Q3 EPS of $0.25 vs. $0.27. (PR)
• Western Digital (WDC): FQ4 EPS of $0.76 beats by $0.48. Revenue of $1.9B (-5%) vs. $1.6B. (PR)
• XL Capital (XL): Q2 EPS of $0.96 beats by $0.34. Revenue of $1.73B (-19%) vs. $1.71B. (PR)

Today's Markets

Asian markets were broadly down, but Europe is off to a strong start. U.S. futures have dipped into negative territory.

In recent blog posts I've talked about the Dow effect and Russell effect, so I decided I would devote this post to the S&P effect. The S&P 500, much like the Dow, has a committee which selects the stocks in the index. I believe it's only a matter of time before Visa (V) is added to the S&P 500.

I believe this because Visa is the last credit card giant not listed in the index, not to mention Visa is larger and more profitable than all four of the similar companies currently listed in the index. These companies are: American Express (AXP), Capital One (COF), Discover Financial (DFS), and (Mastercard (MA)).Visa's current market cap is actually bigger than any two of the four added together.

Q1 2008 Earnings Call

April 30, 2009 9:00 am ET

As earnings season begins to unfold, it is a good time to look at some stocks that have managed to show growth despite the economic downturn.

The following list was generated by screening for the following characteristics:

Ironically, terrific strides in productivity are making life miserable and the outlook bleak for the U.S. natural gas industry. Dazzling technological advances coupled with exponential production increases in shale wells have flooded the U.S. with an over-supply of natural gas at the same time that economic woes are driving consumer and industrial demand into the ground. Too much of a good thing does not make a pretty picture. In fact, J. Marshall Adkins, who leads the energy research team at Raymond James & Assoc., thinks it’s pretty ugly. On a more positive note, he tells The Energy Report readers that oil fundamentals remain strong and his firm is as bullish as it can be on oil’s long-term future. Marshall is Raymond James & Associates’ Director of Energy Research and Managing Director of Equity Research.

The Energy Report: How about getting us started with an overview of where you see oil and natural gas this year and next?

The last several years were, without a doubt, heady times for the oil and gas industry. Oilfield suppliers in particular enjoyed a kind of prosperity that even many industry old-timers regarded as nothing short of extraordinary. But growth in demand, and the challenges of serving that growth, clearly took a toll on the service and performance customers received from their suppliers during the period. In fact, EnergyPoint Research’s Oilfield Customer Satisfaction Index fell significantly beginning in 2004, hitting its all-time low in mid-2008. Ironically, although not surprisingly, this low-point in customer satisfaction came at the same time the Philadelphia Oil Service Index (OSX) reached its historic peak.

Despite enjoying some recent recovery, oilfield supplier customer satisfaction scores still remain conspicuously low. Comparison with other products and services in the broader economy — as measured by the American Customer Satisfaction Index — suggests oilfield suppliers’ aggregate ratings currently rank somewhere between those of commercial airlines and the U.S. Postal Service, organizations few consider to be champions of the customer cause.

Q4 2008 Earnings Call

February 17, 2009 9:00 am ET

FMC Tech (FTI) shares are trading at $26, a far cry from the $75 seen in July, but this fallout in crude prices gives investors a phenomenal opportunity to scoop up cheap shares of oil services stocks because the drilling demand will only continue to boom as supply begins to dwindle and demand picks up again.

Bullish Calls:

BP (BP): "I'm buying this aggressively for my trust. I like that yield and I think it holds up in this environment."
Gilead Sciences (GILD): “I'm recommending Gilead Sciences and will continue to pull the trigger on that one."
Campbell’s Soup (CPB): "It wasn't that great a quarter, but I can't tell you to sell soup in the middle of a recession."
ConcoPhilips (COP): "I like Conoco and I'm buying it right here. "

This is the Third Quarter 2008 edition of our ongoing hedge fund tracking series. Before reading this update, make sure you check out the preface to the series we're doing on Hedge Fund 13F's here.

The other funds we've already covered include:

Back from a rigorous real estate trip to the Wilmington, NC environs. I am finding excellent opportunities to Lease-Option and Land Contract new homes which we build at a reasonable price and market to buyers who are not quite ready for prime time bank financing even though they have good income and very good credit scores. The three bedroom/two bath ranch homes are receiving excellent reviews for quality and livability. Even in a crappy market, business is approaching the brisk stage. I also like multi-family housing, as the supply of renters keeps growing and growing.

On to stocks. Standard and Poor's regularly publishes a list of undervalued stocks that, in their opinion, have superior upward price potential. The stocks inhabiting this list, called the Neural Fair Value 25 Portfolio, have traditionally performed better than the S&P 500, which now means they lose less - but I digress.