5 stocks to watch for next week
Apple shifts some production to the US. Domestic natural gas exports could transform Exxon Mobil, Garmin will join S&P 500. Costco and Joy Global are scheduled for earnings.
1) Apple to build computers in the U.S.
What's happening: Apple (AAPL) will produce one of its existing lines of Mac computers in the U.S. starting next year. CEO Tim Cook made the comments as part of his recent interview for NBC's "Rock Center." The comments followed a similar track from a Bloomberg BusinessWeek interview where he said the company will spend $100 million in 2013 to move production of the line to the U.S. from China. Cook didn't say which line of computers would be produced in the U.S. or where in the country they would be made. But he told Bloomberg that the production would include more than just final assembly. That suggests that machining of cases and printing of circuit boards could take place in the U.S. The news followed Apple's worst stock drop in four years, erasing $35 million in market capitalization.
Technical analysis: AAPL was recently trading at $547.24, up $8.45. The technicals for AAPL are bearish with a strong downward trend and the stock has been under distribution with support above $536.18 and resistance below $588.44. Of the 38 analysts who cover the stock 32 rate it a "strong buy," four rate it a "buy," and two rate it a "hold." The stock receives Standard & Poor's 5 STARs "strong buy" ranking.
Analysts' thoughts: Apple currently presents a strong financial picture with far more positive fundamental comments than negatives. Despite the financial picture, investors have been heavily selling in recent trading. The recent drop in value has placed shares in an undervalued position when compared to other stock in its industry. Apple's growth is expected to exceed the growth of many of its peers. This growth combined with strong FCF generation, high ROE and substantial cash on hand makes the stock a compelling value at this time. Despite soft demand for computers and consumer electronics, and competitive threats, sales of iPhones, iPads and MacBooks should continue to grow at a healthy pace through the next few years. The stock has been underperforming the market with recent trading activity showing a significant price decline. Investors will have to decide the strong fundamentals warrant a higher share value for the price deterioration to reverse.
2) Government study could mean boon for U.S. gas exports
What's happening: The U.S. has an abundant supply of natural gas. Shipping some of this newly abundant supply overseas would benefit the nation's economy more than keeping it all at home. A long-awaited government study has the potential to reshape the global energy market. The endorsement could turn the tide in a politically sensitive issue. Gas producers are eager to export more, while big consumers including manufacturers and chemical companies are leery that exports could raise domestic prices. Environmental groups, meanwhile, fear that allowing exports would encourage more natural-gas production. The looming prospect of the U.S. becoming a major exporter of natural gas underscores how the energy revolution is transforming the nation's economic prospects. The largest U.S. gas producer, Exxon Mobil (XOM), is teaming up with Qatar Petroleum for a facility near Port Arthur, Texas. The partners are proposing to invest $10 billion to turn a gas-import terminal into one that can export.
Technical analysis: XOM was recently trading at $88.00, up $0.27. The technicals for XOM are bearish with a possible trend reversal and the stock has been under distribution with support above $87.15 and resistance below $88.09. Of the 14 analysts who cover the stock six rate it a "strong buy," one rate it a "buy," and seven rate it a "hold." The stock receives Standard & Poor's 5 STARs "strong buy" ranking.
Analysts' thoughts: The fundamental factors for Exxon currently present a mixed financial picture with an equivalent number of positive and negative fundamental comments. The stock is fairly valued when compared to other stocks in its industry group. Exxon has enjoyed superior earnings, dividend growth and stability and is positioned to benefit from upstream growth opportunities. The company's management is effectively managing its total resources to generate profits for the company when compared to industry averages. Recent trading activity suggests a lack of upward price momentum with declining buying interest. As a result of these factors, price appreciation should be limited over the near term. Over the longer term, the company's fundamentals will need to improve in order to sustain price appreciation.
3) Costco rings up earnings Wednesday
What's happening: Costco Wholesale (COST) will be stepping into the earnings spotlight on Wednesday before the market open. Analysts are expecting higher profit from the company with the consensus estimate calling for earnings of 93 cents per share, a rise of 16.25% from the 80 cents per share a year ago. Over the past three months the consensus estimate has risen from 92 cents, but has remained steady over the past month. Revenue is expected to eclipse the prior year's total of $21.63 billion with a reading of $23.48 billion in the current quarter. For the year analysts are looking for earnings of $4.50 per share on revenue of $106.04 billion.
Technical analysis: COST was recently trading at $98.47, down $0.48. The technicals for COST are bullish with a weak upward trend and the stock has been under accumulation with support above $96.57 and resistance below $105.89. Of the 20 analysts who cover the stock ten rate it a "strong buy," one rate it a "buy," six rate it a "hold," and three rates it a "sell." The stock receives Standard & Poor's 3 STARs "hold" ranking.
Analysts' thoughts: Costco presents a strong fundamental picture with a large number of positive fundamental comments. The stock presents a fair value when compared to other stocks in its industry group although further price appreciation is possible. The company is expected to increase market share in the near term with aggressive pricing to maintain a strong value position. Costco is well positioned to generate long term earnings growth with new store expansion and a strong balance sheet. In order for waning price momentum to improve investors will need to recognize the strong fundamental position the company holds. Given the strong fundamentals of Costco, the current negative view the market is taking should not result in any significant price erosion.
4) Garmin set to join S&P 500 index
What's happening: Garmin (GRMN) announced that it will become a component in the S&P 500 index after the close of trading on Tuesday, December 11. Garmin is replacing R.R. Donnelley (RRD), which is moving to the MidCap 400 index. The announcement follows the company's third quarter earnings announcement, which showed stronger sales of cars and mobile devices and outdoor gadgets helped boost revenue, and results topped analyst expectations. For the full year, the company said it now expects to earn $2.75 to $2.90 per share, up from its previous estimate of $2.70 to $2.85 per share. Analysts, on average, expect $2.73 per share. The company has now surpassed analyst estimates for four quarters in a row. It beat the mark by 28 cents in the second quarter, by 4 cents in the first quarter, and by 19 cents in the fourth quarter of the last fiscal year.
Technical analysis: GRMN was recently trading at $41.99, up $2.28. The technicals for GRMN are bullish with a possible trend reversal and the stock has been under distribution with support above $37.75 and resistance below $39.91. Of the nine analysts who cover the stock four rate it a "strong buy," and five rate it a "hold." The stock receives Standard & Poor's 3 STARs "hold" ranking.
Analysts' thoughts: The overall analysis of the fundamental factors for Garmin reveals that the company needs to work to improve its financial performance. This shows up in the large number of negative fundamental comments. The stock is slightly overvalued at this juncture when compared to other stocks in its industry group but possibly may experience further price appreciation. Concern about the demand for Personal Navigation Devices are growing as there are many free mobile navigation Apps available while the auto segment remains in the midst of a secular decline. However, despite the uncertain economic environment, increasing competitive pressures, and exposure to the consumer in the U.S. and Europe, sales should benefit from market share gains and new product releases in most of the company's business segments. In spite of the weak fundamentals, price momentum is very strong and the stock has outperformed the market when compared to the S&P 500. As a result of these factors, price appreciation should continue over the near term. Over the longer term, the company's fundamentals will need to improve in order to sustain price appreciation.
5) Joy Global earnings will be uncovered Wednesday
What's happening: Joy Global (JOY) will unveil its latest earnings on Wednesday before the market open. The average estimate of analysts is for net income of $1.91 per share, a rise of 4.4% from the company's actual earnings for the same quarter a year ago. During the past three months, the average estimate has moved down from $1.92 but has been unchanged at $1.91 during the last two months. Analysts are projecting annual profit to rise by 20.1% compared to last year's $5.92 per share. The company missed estimates last quarter after falling short in the prior two quarters. On average, analysts predict $1.42 billion in revenue this quarter, a rise of 6.5% from the year-ago quarter. Analysts are forecasting total revenue of $5.49 billion for the year, an increase of 24.7% from last year's revenue of $4.4 billion.
Technical analysis: JOY was recently trading at $56.45, down $0.18. The technicals for JOY are bearish with a weak downward trend and the stock has been under distribution with support above $55.60 and resistance below $57.33. Of the 19 analysts who cover the stock eight rate it a "strong buy," five rate it a "buy," five rate it a "hold," and one rates it a "underperform." The stock receives Standard & Poor's 4 STARs "buy" ranking.
Analysts' thoughts: Joy Global presents a mixed financial picture at this time with positive fundamental factors offset by a similar number of negatives. Despite the mixed fundamental picture the stock appears undervalued when compared to other stock in the industry. Demand for the company's products will remain relatively solid, despite reduced visibility in Joy's business as a result of challenging economic conditions. Net sales are expected to rise 25% in fiscal 2012. The stock's recent price momentum is negative and it has been underperforming the market when compared to the S&P 500. In order for the stock to show any significant price improvement, the company must strengthen its financial performance and regain investor's confidence.
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Bruce Frey does not have direct ownership in any of the stocks mentioned today.
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Serious issues like drought and the deterioration of the developed world spell opportunity for this industry leader.
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