5 stocks to watch next week
Chevron expands Gulf operations. Toll Brothers and AutoZone are set to release earnings. Auto sales and holiday shopping season could move GM and Limited.
By Bruce Frey, InvestorsObservers
1) Chevron buys right to explore for Gulf oil
What's happening: Chevron (CVX) paid top dollar for the right to explore oil and gas blocks off the coast of Texas, the U.S. Department of the Interior said. BP (BP) decided not to participate even before the U.S. government temporarily banned it from new federal contracts. Chevron paid $17.2 million for a block, the top bid for a single tract. The lease sale racked up $133 million in bids. ConocoPhillips (COP) submitted the most bids, 62, worth $52 million overall. Chevron was No. 2, with 28 bids worth $56 million. The auction highlighted the growing importance of deep and ultra-deep exploration in Gulf of Mexico waters. Of 116 tracts up for grabs in this latest leasing round, 70 are in water depths of 800 meters or more, and 35 in water depths of 1,600 meters or more.
Technical analysis: CVX was recently trading at $105.79, up $0.21. The technicals for CVX are bearish with a weak downward trend and the stock has been under distribution with support above $102.76 and resistance below $106.45. Of the 14 analysts who cover the stock 11 rate it a "strong buy," one rates it a "buy," two rate it a "hold," The stock receives Standard & Poor's 5 STARs "strong buy" ranking.
Analysts' thoughts: Despite Chevron's strong financial picture, as evidenced by the large number of positive fundamental factors, investors have shied away from the stock in recent trading. The stock, however, appears to be fairly valued when compared to other stocks in its industry group. The company is currently in the process of reducing it refining footprint to focus on upstream projects with higher margin potential. Chevron is also developing LNG projects with an eye on building a top gas supply position in Asian-Pacific markets. The stock has been experiencing a price decline in recent trading and has been underperforming the market when compared to the S&P 500. In order for price appreciation to occur investors will need to recognize the company's strong fundamentals warrant a higher price.
2) Housing recovery could help Toll Brothers earnings
What's happening: Recent data showed improvement in the housing market. The National Association of Realtors' pending home sales index jumped 5.2% to 104.8 in October, a four year high. It's the 18th straight monthly increase for the forward-looking indicator. The trends varied by region with the Northeast seeing some impact from Superstorm Sandy. This provides a very nice backdrop for Toll Brothers (TOL) earnings, which are expected Tuesday before the market open. The average estimate of analysts is for profit of 24 cents per share, a rise of more than twofold from the company's earnings in the same quarter a year ago. For the year, analysts are looking for earnings of 66 cents per share on revenue of $1.82 billion.
Technical analysis: TOL was recently trading at $32.06, up $0.09. The technicals for TOL are bearish with a weak downward trend and the stock has been under distribution with support above $31.79 and resistance below $32.55. Of the 15 analysts who cover the stock four rate it a "strong buy," three rate it a "buy," six rate it a "hold," and two rate it a "sell." The stock receives Standard & Poor's 3 STARs "hold" ranking.
Analysts' thoughts: There are far more positive fundamental factors for Toll Brothers than negative factors resulting in a strong financial picture. The stock is fairly valued when compared to other stocks in its industry group. The housing market has shown some signs of improving demand, but single-family home sales could remain under pressure given the volume of foreclosures that add to the supply of existing homes. Despite these challenging housing trends, Toll Brothers stands to benefit from a business model that is focused on high-end homes and a strong balance sheet giving the company the ability to gain market share from private luxury builders. The stock has recently been experiencing a price decline while underperforming the market when compared to the S&P 500. For the price deterioration to reverse, investors will have to decide that the current strong fundamentals warrant a higher price than the stock currently carries.
3) Limited Brands looks for happy holiday season
What's happening: Limited Brands (LTD) appears to be poised for a profitable holiday shopping season. The company reported a November same-store sales increase of 5%, which was above analysts' expectations of a 3.1% rise. The operator of Victoria's Secret, Pink, and Bath & Body Works specialty stores said its total November sales increased to $922 million from $872.6 million. Nationwide sales for the November-December holiday season look set to rise 4.1% this year after a 5.6% increase in 2011. An extra weekend and online shopping are expected to help same-store sales in December. Limited Brands now sees total December comparable sales up in low-single digit range. The impact of Sandy on November comparable sales was about 1-2 percentage points according to the company.
Technical analysis: LTD was recently trading at $51.58, up $0.79. The technicals for LTD are bullish with a possible trend reversal and the stock has been under accumulation with support above $48.73 and resistance below $50.87. Of the 19 analysts who cover the stock six rate it a "strong buy," three rate it a "buy," nine rate it a "hold," and one rates it a "underperform." The stock receives Standard & Poor's 4 STARs "buy" ranking.
Analysts' thoughts: Limited Brands presents a mixed financial picture at this juncture with a similar number of positive and negative fundamental comments. The stock is, however, fairly valued when compared to other stocks in its industry group. The company's management appears to be effectively allocating total resources to generate profits for the company when compared to industry averages. Limited Brands is seen benefiting from owning the intimate apparel and personal care/beauty categories in the specialty retail sector. The stock's recent price momentum has been positive and it continues to be a market performer 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 to regain investor's confidence.
4) General Motors sees auto sales cruise to multi-year highs
What's happening: The U.S. auto industry is poised to report November sales, which likely cruised to another four-year high, a sign that the domestic market has returned to health even as Europe and Asia sales falter. Industry executives interviewed ahead of the Los Angeles Auto Show said November results should continue the year's big gains. Some analysts estimate November sales could hit an annualized selling pace of 15.2 million cars and light trucks marking the strongest single monthly showing since 2008. Next year, U.S. sales are projected to reach between 14.5 million and just over 15 million cars and light trucks, a third consecutive year of growth. U.S. sales this year are projected to hit 14.4 million vehicles.
Technical analysis: General Motors (GM) was recently trading at $26.09, up $0.81. The technicals for GM are bullish with a possible trend reversal and the stock has been under distribution with support above $24.86 and resistance below $25.35. Of the 14 analysts who cover the stock nine rate it a "strong buy," one rates it a "buy," three rate it a "hold," and one rates it a "underperform." The stock receives Standard & Poor's 4 STARs "buy" ranking.
Analysts' thoughts: The positive fundamental comments for GM are offset by a similar number of negatives indicating a neutral financial picture. The stock is fairly valued when compared to other stocks in its industry group. The company has made a concerted effort to reduce its North American production footprint and cost structure to be profitable through the next demand cycle. Also, the company's focus on fewer brands, and new production and incentive discipline in the U.S. will likely enhance its products, marketing and profits. The stock's recent price momentum is positive and the stock has been outperforming the market when compared to the S&P 500. As long as the fundamentals remain intact the stock should be at least a market performer in the intermediate term.
5) AutoZone drives into earnings spotlight Tuesday
What's happening: AutoZone (AZO) will drive into the earnings spotlight on Tuesday before the market open. The average estimate of analysts is for profit of $5.40 per share, a rise of 15.4% from the company's actual earnings for the same quarter a year ago. The consensus estimate has remained unchanged in the past month, but is down from $5.45 three months ago. AutoZone is expected to beat last year's reported revenue of $1.92 billion with a reading of $2.02 billion for the quarter. For the year, analysts are projecting earnings of $27.58 per share, a rise of 17.5% from last year with revenue for the fiscal year expected to rise to $9.24 billion from $8.60 billion in the previous year.
Technical analysis: AZO was recently trading at $379.78, down $4.08. The technicals for AZO are bullish with a weak upward trend and the stock has been under accumulation with support above $379.95 and resistance below $383.86. Of the 16 analysts who cover the stock eight rate it a "strong buy," and eight rate it a "hold." The stock receives Standard & Poor's 3 STARs "hold" ranking.
Analysts' thoughts: AutoZone currently has a positive financial picture with a large number of positive fundamental factors. The stock is fairly valued when compared to others in its industry. With industry-leading sales per square foot, as well as higher gross operating and net margins than any of its peers should bode well for the company moving forward. Another positive for the company are the favorable long-term trends seen for the automotive aftermarket retail industry, with an aging vehicle population and pent-up demand from recent maintenance deferrals. AutoZone has seen positive price momentum in recent trading but the stock still has the possibility for further price appreciation. As long as the fundamental picture remains in focus the stock should be able to be a strong performer over the intermediate term.
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Bruce Frey does not have direct ownership in any of the stocks mentioned today.
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