5 stocks to watch next week
News Corp. dabbles in M&A, housing data lift Lennar, and Green Mountain finds a new CEO. Tiffany and Ann will report Q3 earnings.
By Bruce Frey, InvestorsObserver
1) News Corp. says yes to acquisitions
What's happening: News Corp. (NWSA) has agreed to purchase 49% of the YES Network in a deal that values the pay-TV outlet at around $3 billion. YES Network's key asset is the right to broadcast New York Yankees games, considered more valuable than any baseball team in the U.S. The sellers include Goldman Sachs Group (GS) and Providence Equity Partners. The deal provides a path for News Corp. to raise its stake in the network to 80% with the New York Yankees baseball team owner Yankee Global Enterprises retaining minority stake. In other acquisition news for News Corp., which owns HarperCollins Publishers, has expressed interest to CBS Corp. (CBS) about acquiring its Simon & Schuster book business.
Technical analysis: NWSA was recently trading at $23.82, down $0.19. The technicals for NWSA are bullish with a weak downward trend and the stock has been under distribution with support above $23.22 and resistance below $24.80. Of the 21 analysts who cover the stock 14 rate it a "strong buy," three rate it a "buy," and four rate it a "hold." The stock receives Standard & Poor's 4 STARs "buy" ranking.
Analysts' thoughts: The financial picture presented by News Corp is a strong one as evidenced by a number of positive fundamental factors. The stock appears to be fairly valued when compared to other stocks in its industry group and further price appreciation is possible. A fourth quarter publishing impairment charge capped an otherwise strong fiscal year in 2012. The company appears on track for a restructuring of its operations which is expected to be completed in the next year. Following a nice rally in the shares the split has the potential to unlock significant value in the core entertainment businesses. Price momentum has softened recently though the stock has stayed in line with the overall market as measured by the S&P 500. Over the intermediate term News Corp should perform in line with the market so long as the positive fundamentals remain intact.
2) Earnings at Tiffany & Co. on Thursday
What's happening: Tiffany & Co. (TIF) will unveil its third quarter results on Thursday before the market open. Analysts will be looking for earnings of 63 cents per share, a 10% decrease from the actual earnings of 70 cents per share reported in the previous year's third quarter. The average estimate has moved down from 66 cents per share three months ago to 64 cents two months ago. Between one and two months ago, the average estimate was unchanged at 63 cents per share. It also has not changed during the last month. Revenue for the quarter is expected to come in at $857.47 million, a small increase from the $821.77 million reported in the same quarter of last year. For the year earnings are expected to come in at $3.60 per share on revenue of $3.86 billion.
Technical analysis: TIF was recently trading at $61.23, up $0.39. The technicals for TIF are bearish with a weak downward trend and the stock has been under distribution with support above $60.15 and resistance below $61.83. Of the 18 analysts who cover the stock eight rate it a "strong buy," two rate it a "buy," and eight rate it a "hold". The stock receives Standard & Poor's 5 STARs "strong buy" ranking.
Analysts' thoughts: The fundamentals for Tiffany are indicative of a company with a strong financial base. The stock is fairly valued when compared to other stocks in its industry group but still has the potential for price appreciation. The company's management appears to be effectively allocating total resources to generate profits for the company when compared to industry averages. Tiffany faces some near term challenges but despite these the company appears to be positioned well moving forward. Management has been focusing on brand awareness in order to increase market penetration in Continental Europe, the Asia-Pacific, and Latin America. The company should benefit from easier comparisons and lower product costs starting in the fourth quarter. The stock has seen strong price momentum and has stayed in line with the S&P 500. With the strong fundamental outlook the stock should be an above average performer over the intermediate term.
3) Lennar gets boost from housing data
What's happening: U.S. home building rose in October to its highest rate in more than four years lifting Lennar (LEN) and other homebuilders. Housing starts increased 3.6% from September to a seasonally adjusted annual rate of 894,000, according to a Commerce Department report. Compared with a year earlier, new-home construction was up 41.9% hitting its highest rate since July 2008, before the financial crisis crushed the housing market. The Commerce Department said superstorm Sandy did not have a major impact on the data because the storm hit only a small part of the country and at the end of the month.
Technical analysis: LEN was recently trading at $38.32, up $0.22. The technicals for LEN are bullish with a possible trend reversal and the stock has been under distribution with support above $34.83 and resistance below $38.71. Of the 17 analysts who cover the stock five rate it a "strong buy," two rate it a "buy," eight rate it a "hold," and two rate it a "sell". The stock receives Standard & Poor's 3 STARs "hold" ranking.
Analysts' thoughts: Lennar presents a very positive financial picture at this time with positive fundamental factors outweighing negatives by a wide margin. When compared to other stocks in its industry group the stock appears to be slightly overvalued, but further price appreciation remains possible. Lennar should be able to sustain profitability with reduced construction and operating costs on new scaled-down homes coming to market. The company's land acquisition strategy also represents the potential for long-term profits in new land purchases or option land contracts with abundant land coming to market from banks that took possession of distressed or bankrupt private homebuilders. The stock has outperformed the market when compared to the S&P 500 with strong price momentum. As long as the positive financial picture remains in focus the stock should be a strong performer in the intermediate term.
4) Green Mountain Coffee names new CEO ahead of earnings
What's happening: Green Mountain Coffee Roasters (GMCR) named Coca-Cola's (KO) Brian Kelley as chief executive officer to succeed Lawrence J. Blanford, who is retiring. Blanford, who said in February he planned to retire, helped the board identify a successor. The announcement came a week ahead of the company's latest earnings report, which will be released Tuesday after the market close. The average estimate of analysts is for net income of 47 cents per share which represents a flat comparison to the actual earnings for the same quarter a year ago. On average, analysts predict $902.2 million in revenue this quarter, a rise of 26.7% from the year-ago quarter. For the year analysts are projecting profit to rise by 36.6% on a 43.8% rise in revenue with a reading of $2.24 per share on revenue of $3.81 billion.
Technical analysis: GMCR was recently trading at $27.77, down $0.10. The technicals for GMCR are bullish with a weak upward trend and the stock has been under accumulation with support above $23.95 and resistance below $31.83. Of the 14 analysts who cover the stock eight rate it a "strong buy," two rate it a "buy," three rate it a "hold," and one rates it a "sell".
Analysts' thoughts: The financial picture for Green Mountain Coffee Roasters is a bit fuzzy with negative and positive fundamental factors about evenly placed. The stock appears to be undervalued at the present time when compared to other stocks in its industry group. An increase in holiday spending will likely help the company recover some of the lost market share brought about by the introduction of competing single-serve coffee and latte makers and private label capsules. Price momentum has been improving in recent sessions but the stock has underperformed the market as measured by the S&P 500. For price momentum to improve the company will need to address the negative fundamental factors while investors will need to see the positive fundamentals improve. In its current state the stock should be a market performer in the intermediate term.
5) Ann Inc. dressing up for earnings
What's happening: Ann Inc. (ANN) will step out of the earnings dressing room before the market open on Wednesday. Analysts estimates for the quarter range from a high of earning 79 cents per share to a low of earning 70 cents per share. The consensus estimate comes in at earnings of 74 cents per share, a 21.3% increase from the actual earnings reported in the same quarter a year ago. Revenue for the quarter is expected to come in at $606.11 million, up 7.5% from the $564 million in revenue reported in the previous year's third quarter. For the year analysts, will be looking for per share earnings of $2.22 on revenue of $2.39 billion.
Technical analysis: ANN was recently trading at $34.06, down $0.02. The technicals for ANN are bullish with a weak downward trend and the stock has been under distribution with support above $31.89 and resistance below $35.35. Of the 14 analysts who cover the stock eight rate it a "strong buy," and six rate it a "hold". The stock receives Standard & Poor's 3 STARs "hold" ranking.
Analysts' thoughts: Ann presents a strong fundamental picture at this time and the stock appears to be valued in line with other stocks in its industry. With total brand same-store sales improving in the recent July quarter, it appears the company is taking the necessary steps to hold market share. Sales improvement seems to reflect a favorable customer response to deeper inventory investments in color, print and pattern, as well as greater depth and breadth in opening price points at Ann Taylor Stores. Price momentum has slowed, but the stock has managed to outperform the market when compared to the S&P 500. For price momentum to improve, the company will need to show investors the strong fundamental position the company holds. As long as the fundamentals do not change the current negative view in the market should not result in significant price erosion.
Bruce Frey does not have direct ownership in any of the stocks mentioned today.
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The recent alleged housing recovery is a "subsidized bounce" by the Fed. It's no secret there's
huge shadow inventory still. Brilliant, Otiose. More Keynesian economic.
For housing, I think that banks are holding on a large amount of foreclosure units or they just let those people staying in the houses without paying the mortgage. If banks foreclose all unpaid units and sell them in the market, we will see a major crash. I hope banks can hang on to it; otherwise the return of 1929 in housing industry.
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These companies won't soar like other plays in the sector, but they make for great income sources.
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