What's Driving These 5 Stocks To New Highs?

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Includes: ATVI, BMY, CELG, CNP, DUK
by: Investment Underground

By Scott McDonald

When considering whether to invest in any hot stock, it is important to understand what is driving the stock price to new heighs. Is the buying interest being triggered by strong company fundamentals, solid earnings growth or market rumor and sentiment? I will answer that question for each stock below below. In this article I will review five stocks that have recently hit new highs due to high investor interest, with a view to determining whether they are worth investing in and if they have any future growth prospects. At their 52-week highs, these five stocks were chosen because they are trading on volume above their last month's average volume.

CenterPoint Energy Inc (NYSE:CNP)

CenterPoint Energy Inc has a market cap of $8.80 billion with a price to earnings ratio of 17.27. For the last 52 week period its trading range has been $15.09 to $21.12. Its last trading price was $20.67. It reported second quarter earnings 2011 of $1.84 billion, a decrease from first quarter earnings of $2.59 billion. Second quarter net income was $119 million, a decrease from first quarter net income of $148 million. The company has quarterly revenue growth of 4.60% and a return on equity of 16.13%. CentrePoint Energy pays a dividend with a yield of 3.90%.

One of CenterPoint Energy’s closest competitors is Xcel Energy Inc (NYSE:XEL). Xcel Energy last traded at $25.17 and has a market cap of $12.20 billion. It has a price to earnings ratio of 14.86, quarterly revenue growth of 5.70% and a return on equity of 10.24%. It pays a dividend with yield of 4.20%. Based on these performance indicators, both companies are performing on par.

CenterPoint Energy’s cash position has improved, its second quarter 2011 balance sheet showed $190 million in cash, an increase from $95 million in the first quarter. CenterPoint Energy has quarterly revenue growth of4.60% against an industry average of 6.00%, and a return on equity of 16.13%, versus an industry average of 11.10%, indicating that CenterPoint Energy is performing on par with many of its peers and ahead of many.

The earnings outlook for the utilities industry has been forecast as stable as demand for energy relatively inelastic and because of low prices and abundant supplies of natural gas and power, low interest rates, and open capital market conditions. The downside is that earnings growth will be gradual due to the current depressed economic climate and high unemployment, which will see the demand for energy remain stable rather than grow.

Although CentrePoint Energy has had decline in earnings and net income, when the earnings outlook is considered in conjunction with the increase in balance sheet cash and the attractive dividend yield I rate the company as buy. Earnings are driving this name higher.

Activision Blizzard Inc (NASDAQ:ATVI)

Activision Blizzard Inc has a market cap of $14.73 billion and a price to earnings ratio of 23.78. For a 52 week period its trading range has been $10.40 to $13.22. Its last trading price was $12.89.

The company reported second quarter earnings for 2011 as $1.15 billion, a decrease from first quarter earnings of $1.45 billion. Second quarter net income was $335 million, a decrease from first quarter net income of $503 million. The company has quarterly revenue growth of 18.50%, a return on equity of 6.15%, and pays a dividend with a yield of 1.30%.

One of Activision Blizzard’s closest competitors is Electronic Arts Inc (ERTS). Electronic Arts last traded at $23.62 and has a market cap of $7.79 billion. Electronic Arts has quarterly revenue growth of 22.60%, a return on equity of -5.49% and does not pay a dividend.

Activision Blizzard’s cash position has declined, its second quarter 2011 balance sheet showed $1.17 billion in cash, a decrease from $1.58 billion in the first quarter. Its quarterly earnings growth of 18.50% is greater than the industry average of 4.70% and a return on equity of 6.15%,greater than an industry average of 4.0%. Based on these performance indicators Activision Blizzard is outperforming many of its industry peers.

The earnings outlook for the multimedia and graphic software industry is poor. This is due to the current uncertainty about the economy and the disappointing growth in the jobs market that has affected the consumer sentiment. The NPD Group, a market research firm, recently reported that; “the gaming industry has shrunk 26.0% in July 2011 from the comparable previous year and this is the sharpest fall since October 2006.”

When the earnings outlook for the industry is considered in conjunction with Activision Blizzard’s decrease in earnings, net income and the decrease in balance sheet cash, it is difficult to understand the recent buying interest. On this basis I rate Activision Blizzard as a hold. Sentiment that Activision can experience robust growth is powering this name.

Bristol-Myers Squibb Company (NYSE:BMY)

Bristol-Myers Squibb Company has a market cap of $55.18 billion with a price to earnings ratio of 16.77. For the 52 week period its trading range has been $24.97 to $33.20. Its last trading price was $32.35.

The company reported second quarter 2011 earnings of $5.43 billion, an increase from first quarter earnings of $5.01 billion. Second quarter net income was $902 million, a decrease from first quarter net income of $986 million. It is achieving quarterly revenue growth of 14.00%, a return on equity of 30.38%, and pays a dividend with a yield of 4.10%.

One of Bristol-Myers Squibb’s closest competitors is AstraZeneca PLC (NYSE:AZN). AstraZeneca last traded at $46.80, has a market cap of $63.93 billion and a price to earnings ratio of 8.09. It has quarterly revenue growth of 3.10% and a return on equity of 35.69%. AstraZeneca pays a dividend with a yield of 3.60%. Based on these performance indicators Bristol-Myers Squibb and AstraZeneca are performing on equally.

Bristol-Myers Squibb’s cash position has declined, its second quarter 2011 balance sheet showed $3.67 billion in cash, a decrease from $3.41 billion in the first quarter. Bristol-Myers Squibb’s has quarterly earnings growth of 14.00% versus an industry average of 14.60%, and a return on equity of 30.38%, versus an industry average of 15.70%. Based on these performance indicators Bristol-Myers Squibb is outperforming many of its industry peers.

The earnings outlook for the drug manufacturing industry is currently subdued, due to the poor economic conditions and disappointing growth in the jobs. Moody’s recently stated that; “many drug manufacturers have found 2011 to be a challenging year and that 2012 will be an even more challenging year for industry participants.”

Considering the industry earnings outlook combined with Bristol-Myers Squibb’s decreases income and balance sheet cash, it is difficult to understand the recent buying interest. On this basis I rate Bristol-Myers Squibb as a hold. A solid balance sheet and fundamentals are supporting Bristol-Myers.

Celgene Corporation (NASDAQ:CELG)

Celgene Corporation has a market cap of $29.96 billion. For the 52 week period its trading range has been $48.92 to $67.01. Its last trading price was $65.31. The company reported second quarter earnings 2011 as $1.18 billion, an increase from first quarter earnings of $1.13 billion. Second quarter net income was $279.40 million, an increase from first quarter net income of $255.60 million. The company is achieving quarterly revenue growth of 38.80% , has a return on equity of 18.76%, and doesn’t pay a dividend.

One of Celgene’s closest competitors is Amgen Inc (NASDAQ:AMGN). Amgen last traded at $57.32. It has a market cap of $52.97 billion with a price to earnings ratio of 11.92. It has quarterly revenue growth of 4.10% and a return on equity of 18.67%. Amgen pays a dividend with a yield of 2.00%. Based on these performance indicators Celgene is outperforming Amgen.

Celgene’s cash position has improved, its second quarter 2011 balance sheet showed $1.65 billion in cash, an increase from $1.49 billion in the first quarter. Celgene has a quarterly earnings growth of 38.80%, well above the industry average of 19.10%, and a return on equity of 18.76%, versus an industry average of 8.70%. This indicates that the company is outperforming many of its peers.

The current outlook for the biotechnology industry is difficult to predict, while the outlook for the drug manufacturing industry is gloomy, it is far more upbeat for small to medium cap biotech companies, despite tight credit markets and the poor economic outlook. In addition, a devalued US dollar makes US exports more competitive in global markets.

With the increase in net income and cash holdings, combined with a solid quarterly growth rate and a return on equity that is far above the industry average Celgene represents a solid investment opportunity, which explains the recent buying activity. On that basis I rate Celgene as a buy. Improving fundamentals and potential earnings growth are powering Celgene forward.

Duke Energy Corporation (NYSE:DUK)

Duke Energy Corporation has a market cap of $26.90 billion with a price to earnings ratio of 13.13. For the 52 week period its trading range has been $20.13 to $20.38. Its last trading price was $20.20. The company reported second quarter earnings 2011 as $3.53 billion, a decrease from first quarter earnings of $3.66 billion. Second quarter net income was $435 million, a decrease from first quarter net income of $511 million. The company is achieving quarterly revenue growth of 7.70%, a return on equity of 9.31%, and pays a dividend with a yield of 5.00%.

One of Duke Energy’s closest competitors is American Electric Power Co Inc (NYSE:AEP). American Electric Power Co. last traded at $38.47. It has a market cap of $18.55 billion with a price to earnings ratio of 12.87. It has quarterly revenue growth of 7.40%, a return on equity of 10.54%, and pays a dividend with a yield of 4.80%. Based on these performance indicators both companies are performing equally.

Duke Energy’s cash position has improved, its second quarter 2011 balance sheet showed $1.36 billion in cash, an increase from $1.42 billion in the first quarter. Duke Energy’s quarterly earnings growth of 7.70%, versus the industry average of 9.90%, and a return on equity of 9.31%, versus an industry average of 7.10% indicates that the company is performing on par with many of its peers.

The earnings outlook for the utilities industry has been forecast as stable based on the fact that demand for energy by consumers is relatively inelastic and due to low prices and abundant supplies of natural gas and power, low interest rates, and open capital market conditions.

Based on the outlook for the utilities industry combined with Duke Energy’s attractive dividend yield I understand the recent interest in the stock and rate Duke Energy as a buy. Solid fundamentals are supporting Duke Energy.



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