Consider These 5 Stocks For The Long Term

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Includes: BSX, EA, LVS, MRK, QCOM
by: ValueMax

I have identified five interesting stocks that recently reported earnings. While Electronic Arts (NASDAQ:EA) lost money, Merck (NYSE:MRK), Boston Scientific (NYSE:BSX), Las Vegas Sands (NYSE:LVS), and Qualcomm (NASDAQ:QCOM) were able to generate income. Let's see what's been happening with these companies:

Merck & Co. Inc. earned $1.51 billion in the fourth quarter. Adjusted earnings per share beat expectations by a couple of cents, although revenue disappointed to the tune of $200 million. While Merck has experienced difficulties with its vorapaxar blood thinner and staph infection vaccine, the company has a number of exciting products coming out soon. The company hopes to have five important new treatments approved in 2012 and 2013, and old drugs are gaining approval in new territories. Additionally, Isentress the HIV drug and Vytorin the cholesterol drug can now be marketed to new types of patients.

These developments bode well for Merck, and I predict that revenue will continue to grow due to strong sales from Januvia, Janumet, Isentress, and Gardasil. Merck currently offers a dividend yield of 4.1%, although it's worth noting that other major drug manufacturers like GlaxoSmithKline (NYSE:GSK) and Pfizer (NYSE:PFE) also have terrific dividend yields (4.8% and 4.2%). Based on Merck's statement of cash flows, I would not be surprised if the company increased dividends soon. In fact, Merck had nearly $11 billion of operating cash inflow in 2010 and $9.15 billion of operating cash inflow in the first three quarters of 2011. Due to significant advances from Merck's R&D department, I believe these strong cash flows will continue in the future.

Boston Scientific Corporation reported net income of $107 million for the previous quarter. That was disappointing to many investors, especially because revenue decreased at many of the company's divisions. For example, interventional cardiology and cardiac rhythm management were particularly weak. That cardiac rhythm management division includes the implantable heart defibrillator product, and CFO Jeff Capello had this to say about them: "The ICD market appears to be showing signs of stability. We expect it'll take another quarter or two to see if the market has bottomed out." While Boston Scientific has exciting products out right now, I cannot recommend investors buy this stock.

For a slightly higher price to earnings ratio, investors can instead go with a more established name like Johnson & Johnson (NYSE:JNJ) or even St. Jude Medical (NYSE:STJ). Boston Scientific has a higher price/earnings to growth ratio (2.42) than both of those stocks, and its margins are not terrific either (64.02% gross and 14.02% operating). I'm also not sure about how successful some of Boston Scientific's upcoming products will be. For example, the INGENIO pacemakers will be released in the U.S. and Europe soon, but purchasing authorities in that latter market may not be ready to sign up right away. In fact, the devices won't be compatible with MRI systems until later in the year.

Electronic Arts Inc. reported a loss of $205 million for its fiscal third quarter. Adjusted earnings per share were better than analysts were expecting, however, and revenue too was impressive. The company's outlook for the current quarter was low compared to Wall Street estimates, but I believe that Electronic Arts management is just trying to be conservative. For example, Battlefield 3 and Star Wars: The Old Republic are just two of Electronic Arts' games that are seeing massive sales.

With a price to sales ratio that's significantly lower than Activision Blizzard's (NASDAQ:ATVI) (1.68 versus 2.92), Electronic Arts is attractively priced right now. Certain trends are also working in Electronic Arts' favor. The company's sports games such as FIFA are well positioned for future success, and Madden sales could see a boost if Tim Tebow makes it to the cover of the game's next version. As one of the world's top video game companies, Electronic Arts will benefit from the hype that social media can bring to different franchises. In fact, I expect particularly strong sales as Electronic Arts makes improvements to Star Wars: The Old Republic. Additionally, Electronic Arts is in a reasonably decent financial position due to some recent asset sales.

Las Vegas Sands Corp. reported net income of $320.1 million for the fourth quarter. The corresponding adjusted earnings per share met analyst expectations, and the top line even beat Wall Street estimates. For an investor who can stomach Las Vegas Sands' beta of 3.65, I think this stock represents a fairly attractive play. Las Vegas Sands has a number of ambitious plans and strategies, many of which are designed to take advantage of economic growth in Asia. CEO Sheldon Adelson talked a little about putting resorts in countries like Korea, Taiwan, Vietnam, and Japan, and he even said: "Our most recent conversations have advanced to the point where details such as site selection ... have been discussed."

Furthermore, with Sands Cotai opening up soon, I expect Las Vegas Sands to continue its success in Macau. While the company's market share of less than 20% is not very impressive right now, that number could improve as Las Vegas Sands cultivates travel relationships in the region. Meanwhile, Las Vegas Sands is working on government permissions for an additional 4,000 room casino in the Cotai peninsula. Seeing as this area is ripe for construction and Las Vegas Sands already owns the land, Las Vegas Sands figures to benefit if things go as planned.

QUALCOMM Incorporated reported net income of $1.4 billion for its previous quarter. That's over $200 million more than Qualcomm earned last year at this time, and the adjusted earnings per share were seven cents greater than analysts were expecting. Qualcomm is a prime beneficiary of increased smart phone sales throughout the world, and management commented that the current quarter should be especially good due to licensing partnerships of its Snapdragon processor. Both the spread of 3G in developing countries and 4G in developed countries also figure to benefit Qualcomm going forward. While this stock is expensive using price to earnings (24.28) and price to sales (6.83), I think the future growth makes it worthwhile. In fact, Qualcomm's price/earnings to growth ratio (1.03) is significantly lower than Nokia's (NYSE:NOK) (3.46) and Texas Instruments' (NYSE:TXN) (3.77).

China figures to one key contributor of that high growth. As echoed by Qualcomm management, current forecasts have China going over 1 billion mobile connections in the very near future, and 3G accounts for 25% of that market. Needless to say, this is the type of trend that will keep Qualcomm's networking chips in high demand. Qualcomm management also raised its non-GAAP earnings per share guidance to between $3.55 and $3.75, and this should be an accurate assessment.

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