10 Stocks Joel Greenblatt Is Dumping (Part 2)

by: Investment Underground

By Premo Sewnunan

Click here for part 1.

InterDigital Inc (NASDAQ:IDCC) Currently makes up 0.92% of his portfolio. In the first quarter of 2011, 139,323 shares were sold at an average price of $47.46.

The price chart for InterDigital’s stock mimics that of the overall market indexes. On August 2nd, the stock soared about 30% on the news that the company is considering strategic alternatives, including a possible sale of the business. The price then fell just as quickly due to market volatility.

The stock is currently trading 21% below its 52 week high. InterDigital is expensive compared to Alcatel-Lucent (ALU) and Qualcomm (NASDAQ:QCOM). At current price of $68.18, InterDigital is valued at 26 times this year’s earnings and seven times book value, giving a dividend yield of 0.62%. Alcatel-Lucent (ALU) currently trades at 16 times this year’s earnings, while Qualcomm (QCOM) trades at 18 times this year’s earnings.

On the business side of things, results for six months ended 30 June 2011 was weak with a 28% decrease in revenues, mainly due to lack of royalties from key client, LG Electronics (LG). LG has yet to renew its license agreement with InterDigital. Due to this uncertainty, revenues and earnings will suffer for most of 2011.

McGraw Hill Companies (MHP) Makes up 0.41% of portfolio. Sold 139,423 shares at an average price of $37.91 in the first quarter.

The common stock currently trades 22% of its 52 week high. The stock has recovered somewhat after falling 26% amid the broader market selloff. At the current price of $38.69, McGraw Hill is valued at 13.3 times this year’s earnings, a dividend yield of 2.7% and 5 times its book value. Competitor, Pearson Plc (NYSE:PSO) currently sells for 16.5 times this year’s earnings, a dividend yield of 3.7 % and 1.67 times its book value.

The company is considering several options for a corporate restructure. News of this boosted the stock price by 7% on August 2nd. Management is considering selling off the ailing education business which will unlock considerable value. It’s too soon to tell though.

Leaving the rumors aside, the company posted solid June quarter results due to strong contributions from the financial and information/media business segments. A 50 million share repurchase program was also announced which will help per share earnings going forward.

ScanDisk (SNDK) Currently makes up 0.89% of portfolio. Sold 114,026 shares at an average price of $48.4 in the first quarter of 2011.

The common stock currently trades 6% above its 52 week low. At the current price of $34.35, ScanDisk is valued at 6 times this year’s earnings and 1.2 times its book value. Rival, Sony Corporation (NYSE:SNE) is valued at 0.63 times its book value and a 1.47% dividend yield.

The company is on the innovation drive. Together with Toshiba, it created an IC manufacturing process that’s faster and more efficient than Intel (NASDAQ:INTC) or Micron (NASDAQ:MU). Intel projects that by 2012, “ultra books” will account for 40% of PC sales. Scandisk is the leading supplier in PC solid state drives and should benefit from this trend.

In May, Scandisk paid $327 million for Pliant Technology, a developer for enterprise solid state drives. This move diversifies Scandisk’s product portfolio and adds to its revenue streams. Profits for enterprise solid state drives are higher than PC solid state drives.

For the near and long terms, this company should achieve solid results as tablets and Smartphone sales in emerging and developed markets continue to grow.

Lorillard (LO): Makes up 0.53% of portfolio. Sold 56,165 shares at an average price of $80.06 in the first quarter of 2011.

The common stock currently sells 5% of its 52 week high. After falling amid the broader market selloff, Lorillard shares climbed 11% to date. With current price of $111.26, Lorillard is valued at 15 times this year’s earnings and a solid 4.7% dividend yield. Price to book ratio is not available at the current time. Lorillard compares favorably against British American Tobacco (NYSEMKT:BTI) and Reynolds American (NYSE:RAI)

British American Tobacco is valued at 16.7 this year’s earnings, 6.17 times book value and a dividend yield of 4.38%. Reynolds American is currently valued at 15.5 times this year’s earnings and 3.13 times book value.

Lorillard’s business goes from strength to strength. Domestic sales grew by 9% in the first quarter and 10.3% in the second quarter versus same periods last year. This is even more impressive given a 1.3% decline in industry shipments.

The company's total retail market share increased by 1.4 percentage points to 14.2%. The main driver of this growth is the company’s flagship product, Newport and its derivative, Newport Menthol. Also, Maverick, Lorillard’s discount brand is doing well, a 23% jump in sales in the first quarter and 21.2% in the second quarter. This is an important part of the business, given the current economic situation and elevated unemployment levels.

The company raised prices which will drive earnings in the coming quarters. The company repurchased 3.8 and 4.5 million shares in the first and second quarters respectively. With a 4.7% dividend yield, this stock should appeal in income investors.

Impax Laboratories (IPXL) Makes up 0.76% of portfolio. Sold 202,683 shares at an average price of $22.92 in the first quarter 0f 2011.

The common stock currently sells 63% below its 52 week high. At the current price of $17.59, Impax is valued at 9.9 times its current earnings and 2.01 times its book value. On a price to earnings basis, Impax is cheaper than its rivals, Mylan Inc (NASDAQ:MYL) and Teva Pharmaceutical Industries (NYSE:TEVA).

Mylan is currently valued at 20 times this year’s earnings and 1.95 times book value whilst Teva is valued at 11 times this year’s earnings and 1.46 times its book value.

Second quarter results were unimpressive. Impax reported an 18% decrease in revenues versus the same period last year due to an 87% drop in sales of its generic Flomax® drug, which only had an eight week exclusivity period in March 2010. Also hurting results was supply disruptions on its Adderall XR® drug.

Recent news of investigations by the US Food and Drug Administration (FDA) over its manufacturing operations saw the stock price dropping 10%. The company spent $10 million on improvements associated with the investigation and is awaiting FDA availability for a re-visit to its facilities.

On a positive note, the company was recently awarded a $400,000 grant by The Michael J. Fox Foundation for ongoing research in a drug that treats the motor symptoms of Parkinson’s disease.

Recent trials with GlaxoSmithKline (NYSE:GSK) were successful, with Impax looking to file its application with the FDA by the fourth quarter of 2011. Investors should look to the outcomes of forthcoming FDA investigation and the filing of its leading candidate for Parkinson’s disease before making commitments, though we still think GSK is one of the safest dividend stocks to buy.

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