By Larry Gellar
Due to an improving situation in Europe, SPDR S&P 500 (NYSEARCA:SPY) is shooting up. Here are 5 stocks in particular that look ready to beat the market:
Wells Fargo & Company (NYSE:WFC) has been rising lately, and news for the company has centered on a deal with Golden Capital Management. Wells Fargo now has 65 percent ownership of the firm, which cements an already strong relationship between the two companies. Wells Fargo has also been in the headlines for its hiring of two big investment bankers from UBS (NYSE:UBS). Bora Sila and Adam Berger are the two new employees, and this comes at a time when many other banks are scaling back their investment banking operations. Regardless, here’s what John Laughlin, head of mergers and acquisitions at Wells Fargo, had to say:
As we continue to strategically expand our capabilities and add depth to our team, their extensive relationships and industry knowledge will greatly enhance our ability.
Important competitors for Wells Fargo include Bank of America (NYSE:BAC), JPMorgan Chase (NYSE:JPM) and Citigroup (NYSE:C). Those stocks offer lower price to earnings ratios with the exception of Bank of America, which currently has an incalculable price to earnings ratio. Additionally, price to sales for Wells Fargo is relatively high, at 1.79. As for cash flows, Wells Fargo had $11.036 billion flow out during 2010 and $8.015 billion flow in during the first half of 2011.
Pfizer Inc. (NYSE:PFE) stock has been moving up recently, although this company’s profit could be affected significantly by what happens with the generic version of its Lipitor drug. It just fended off an attempt by Teva (NYSE:TEVA) to make a version in the U.K., although it won’t be long before the first United States generic comes out. Pfizer is also moving forward with some stem cell research in the U.K. that seeks to treat macular degeneration caused by old age. Additionally, it has recently proven that its newest treatment for partial seizures is working well. Not everything has gone perfectly for Pfizer though, as the test results for a type of fungal infection just came out. The outcome wasn’t statistically significant, which means that Pfizer probably will not be able put another drug on the market that combats this issue. Bayer (OTCPK:BAYRY), Merck (NYSE:MRK), and Novartis (NYSE:NVS) are all important competitors for Pfizer. Pfizer has the highest price/earnings to growth ratio out of those stocks and a pretty high price to sales ratio too, but its price to earnings ratio is closer to average. Margins are quite strong – gross margin is 75.85% and operating margin is 25.17%. Quarterly revenue growth (year over year) is -0.90%.
SandRidge Energy, Inc. (NYSE:SD) was hurting badly not too long ago due to lower oil prices, but it has recovered nicely since then. The company recently made a deal with Atinum, which is a Korean investment firm. Essentially, SandRidge got cash, while Atinum got a stake in Sandridge’s Mississippian operations. Important competitors for SandRidge include Apache (NYSE:APA) and Brigham Exploration (BEXP). Price to earnings ratio for SandRidge is currently incalculable, although price to sales is 2, lower than many other players in this industry. Operating margin is quite bad though (-9.1%) and gross margin (62.19%) is also lagging behind the competition. Quarterly revenue growth (year over year) is 99.9%, however. As for cash flows, $2 million flowed out during 2010 and $1.25 million flowed out during the first half of 2011. Large capital expenditures were the most important factor in those outflows. Looking at the income statement, negative operating income has played a big role in this company’s problems lately. Regardless, if the price of oil can make a sustained run, this stock will benefit nicely. A good discussion of SandRidge Energy’s balance sheet can be found at this Seeking Alpha article. The gist of that article is that while SandRidge may have some debt problems, it also has some great assets.
Citigroup, Inc. (C) has had a good run lately, and this is one of the stocks that will benefit the most from a stronger European financial position. Citigroup has also gotten some interesting recognition, as it won awards for “Most Innovative Bank for Foreign Exchange” and “Most Innovative Islamic Investment Bank.” Samad Sirohey, one of Citi’s top execs, had this to say:
Citi remains focused on innovation and developing both the geographic as well as product aspects in the Islamic finance industry. Citi has consistently played a pioneering and leading role in the development of Islamic Finance globally, having successfully arranged several billion dollars of Islamic transactions for Citi’s clients in the Middle East, Asia, Europe and Latin America.”
Citigroup is also working on selling music label EMI, and its Israel division will now be listed on the Tel Aviv Stock Exchange. Like Wells Fargo (discussed above), Citigroup is another bank being affected by the shenanigans at UBS. Indeed, Citigroup, along with many other banks, will be conducting internal reviews to make sure that a rogue trader wouldn’t go unnoticed until it’s too late. Important competitors for Citigroup include HSBC Holdings (HBC) and JPMorgan Chase (JPM). Citigroup falls in the middle of those stocks for price to earnings and price/earnings to growth, while price to sales is somewhat low at 1.14. Operating margin is also low at 20.41%.
Pharmaceutical Product Development Inc. (NASDAQ:PPDI) has been moving higher, and the latest news for the company is that it will look for $2.2 billion in order to fund its leveraged buyout. That deal is being undertaken with Carlyle Group and Hellman & Friedman LLC, although a variety of law firms are looking to prevent the transaction from taking place. Indeed, they suggest that Pharmaceutical Product Development didn’t do the best it could to find a good deal. Not long before this deal was reached, Pharmaceutical Product Development hired a new CEO, Raymond Hill. He was the president of IMS Consulting Group, and he should make a solid addition to the Pharmaceutical Product Development team. Pharmaceutical Product Development has made waves especially in the areas of infectious disease. Different aspects of the field of bacteriology could be a big way that this company makes money going forward. Covance (NYSE:CVD) and Parexel (NASDAQ:PRXL) are two important competitors for Pharmaceutical Product Development. Those stocks have higher price to earnings ratios, although Pharmaceutical Product Development has the higher price/earnings to growth ratio and higher price to sales ratio. Margins for Pharmaceutical Product Development are quite solid – those numbers are 47.14% gross and 14.84% operating.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.