5 stocks to watch next week
3 companies are expected to continue reacting to recent news, while 2 are due to report earnings next week.
1) Warren Buffett increases stake in Well Fargo
What's happening: Warren Buffett's Berkshire Hathaway (BRK.A) picked up another 11.5 million shares of Wells Fargo (WFC) in the third quarter, increasing its holdings to over 422.5 million shares, according to the company's latest filing with the Securities and Exchange Commission. Buffett, who has long been Wells Fargo's largest shareholder, says he likes the bank's dependence on customer deposits as a low-cost funding source. Berkshire's stake in Wells dates back to the early 1990s when commercial real estate woes placed the San Francisco bank's shares under severe pressure. But Buffett was also an early believer in Wells Fargo's ability to turn its 2008 merger with troubled Wachovia into a big win.
Technical analysis: WFC was recently trading at $31.57, up $0.14. The technicals for WFC are bearish with a weak downward trend and the stock has been under distribution with support above $30.96 and resistance below $32.55. Of the 27 analysts who cover the stock, 17 rate it a "strong buy," three rate it a "buy," six rate it a "hold," one rates it a "sell." The stock receives a Standard & Poor's 3 star "hold" rating.
Analysts' thoughts: The fundamental financial picture presented by Wells Fargo is mixed at this time -- an equivalent number of positive and negative fundamental comments. The stock appears fairly valued at this juncture when compared to other stocks in its industry. However, there still remains the potential for further price appreciation. The company's management appears to be effectively allocating total resources when compared to industry averages. Price momentum for Wells Fargo stock is lacking at his juncture and the stock has underperformed the market when compared to the S&P 500. As long as the fundamental picture remains in its current state, the stock should recover and once again outpace the S&P 500 over the intermediate term.
2) Starbucks expanding tea selection
What's happening: Starbucks (SBUX) said last week it will acquire Teavana Holdings for around $620 million. Teavana sells high-end loose leaf teas in 300 shopping mall locations. The plan is to expand Teavana's footprint beyond the mall with stand-alone shops, adding tea bars with specialty drinks. Starbucks already owns the Tazo tea brand, which it purchased in 1999. And the company announced plans earlier this year to open its first Tazo tea shop where customers can buy specialty drinks and blend loose leaf teas with the help of employees, a model the company is envisioning for Teavana. A move into the consumer packaged goods category is also expected for Teavana.
Technical analysis: SBUX was recently trading at $48.43, down $0.41. The technicals for SBUX are bullish with a possible trend reversal and the stock has been under accumulation with support above $45.38 and resistance below $51.02. Of the 26 analysts who cover the stock, 17 rate it a "strong buy," one rates it a "buy," eight rate it a "hold." The stock receives a Standard & Poor's 5 star "strong buy" rating.
Analysts' thoughts: Starbucks is a company with a strong fundamental picture despite the recent lack of momentum in the stock price. The stock appears to be slightly overvalued when compared to other stocks in the industry, but further price appreciation is possible. Any pickup in the pace of economic recovery should boost discretionary spending on small items, like cups of specialty coffee and loose tea. Recent trading shows a price decline while also underperforming the market as compared to the S&P 500. In order for the price deterioration to stop, investors will have to decide that the current strong fundamentals warrant a higher price than the stock currently carries.
3) Agilent Technologies reveals fourth quarter earnings Monday
What's happening: Agilent Technologies (A) is expected to release its latest earnings report on Monday after the market close. Analysts are looking for Agilent to post earnings of 80 cents per share, 4.8% less than a year ago when it reported earnings of 84 cents per share. The consensus estimate has fallen over the past three months from 93 cents a share. Revenue is expected to be $1.76 billion for the quarter, a small increase from the year ago quarter of $1.73 billion. Analysts will be looking for earnings for the year to come in at $3.06 per share on revenue of $6.85 billion.
Technical analysis: A was recently trading at $35.75, down $0.39. The technicals for A are bearish with a weak downward trend, and the stock has been under distribution with support above $35.86 and resistance below $37.37. Of the 14 analysts who cover the stock, 13 rate it a "strong buy," one rates it a "buy." The stock receives a Standard & Poor's 4 star "buy" rating.
Analysts' thoughts: The number of positive fundamental comments for Agilent are offset by an equivalent number of negatives, leaving a neutral financial picture. The stock appears to be fairly valued when compared to other stocks in its industry group. Agilent faces near term softness in global markets, but analysts continue to have a favorable view of the company's diversified end-market mix, with exposure to the non-cyclical life sciences and chemical analysis markets as well as cyclical electronic measurement markets. Agilent is also well positioned with geographical diversity and a growing presence in emerging markets. Over the long term, look for a focused expansion through new product offerings in high-growth industries, complemented by opportunistic acquisitions in core markets. Recent trading activity shows that the stock is experiencing a price decline but the stock has been performing in line with the market when compared to the S&P 500. In order for the price deterioration to stop, investors will have to decide that the current strong fundamentals warrant a higher price than the stock currently carries.
4) BP to pay record fine
What's happening: BP (BP) said it will plead guilty to 11 felony counts of "misconduct or neglect of ships officers" relating to the deaths aboard the Deepwater Horizon drilling rig, and to one felony count of obstruction of Congress stemming from information it gave about the rate that oil was leaking from the well. The company also agreed to pay $4.5 billion in penalties, including $1.26 billion in criminal fines, stemming from the disaster that killed 11 workers in 2010 and unleashed the worst offshore oil spill in U.S. history. The company previously took a $38.1 billion charge for what it estimated was the maximum cost it would face related to the accident, but with the settlement it will increase that by $3.85 billion. BP has raised about $35 billion so far from asset sales and other actions, including the recent $2.5 billion sale of its Texas City, Texas, refinery.
Technical analysis: BP was recently trading at $40.3, down $0.14. The technicals for BP are bearish with a possible trend reversal and the stock has been under distribution with support above $39.74 and resistance below $41.84. Of the 14 analysts who cover the stock, six rate it a "strong buy," one rates it a "buy," six rate it a "hold," ones rates it a "sell." The stock receives a Standard & Poor's 3 star "hold" rating.
Analysts' thoughts: A review of the fundamental factors for BP reveals a company with a mixed financial picture. The stock represents a good value when compared to others in its industry group and appears likely to experience further price appreciation. The company remains financially and operationally sound, and well placed to handle uncertainty over Gulf of Mexico and Russian legal claims. Reserve replacement in 2011 was above 100%, and guidance is for 1% production growth per year until 2015. The company has a strong track record of above average exploration success. BP is expected to hone efficiency over the next three years, while its deal with India's Reliance has promising long-term potential. Price momentum has recently been soft despite the stocks in line market performance. The current combination of conditions should provide a limited opportunity for price appreciation for BP. Should the fundamental picture or the price momentum improve, the possibility of price appreciation will also increase.
5) Salesforce.com third quarter earnings come out Tuesday
What's happening: Salesforce.com (CRM) will unveil its latest earnings on Tuesday after the market close. The average analyst estimate is for earnings of 32 cents per share, a small drop from net income of 34 cents in the year-ago quarter. During the past three months, the average estimate has moved down from earnings of 34 cents. Between one and three months ago, the average estimate moved down and it has been unchanged at earnings of 32 cents during the last two months. Analysts are looking for an increase of 32.9% in revenue from the year-earlier quarter to $776.5 million. For the year, analysts are projecting earnings of $1.51 per share, an increase of 11% from last year. Revenue for the current year is expected to show a 33.8% increase to $3.03 billion.
Technical analysis: CRM was recently trading at $140.73, up $1.05. The technicals for CRM are bearish with a weak downward trend and the stock has been under distribution with support above $139.04 and resistance below $142.68. Of the 32 analysts who cover the stock, 24 rate it a "strong buy," four rate it a "buy," two rate it a "hold," two rate it a "sell." The stock receives a Standard & Poor's 3 star "hold" rating.
Analysts' thoughts: Salesforce.com presents a neutral financial picture at this time as evidenced by a similar number of positive and negative fundamental comments. The stock appears fairly valued when compared to other stock in the industry but further price appreciation is possible. While customer relationship management was Salesforce.com's first foothold into many corporations, the company is seen expanding its products to include marketing and service offerings. Salesforce.com will be a beneficiary of any shift by enterprises to embrace SaaS computing, especially if it continues to invest in extending its product offerings. Enterprises are embracing SaaS models to shift IT costs from fixed to variable. Price momentum has slowed in recent trading but the stock has outperformed the market as measured by the S&P 500. In order for the price momentum to improve, investors will have to decide that the current fundamentals warrant a higher price than the stock currently carries.
To access our trades for these stocks click here.Bruce Frey does not have direct ownership in any of the stocks mentioned today.
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