Buy Novartis: A Dividend Gem In The Pharmaceutical Industry

Novartis (NVS) is the most valuable healthcare brand in Europe and the third largest in the world. The company specializes in research, development and manufacturing of a wide array of healthcare products, with pharmaceuticals contributing the largest share. NVS has five segments: Pharmaceuticals for patent-protected prescription medicines; Alcon (surgical, ophthalmic pharmaceutical and vision care products); Sandoz for generic pharmaceuticals; Vaccines and Diagnostics; and Consumer for OTC and animal health.

The stock is currently trading at 11x its forward earnings; analysts estimate a mean price target of $65. We are particularly optimistic about NVS's strong portfolio of drugs and a rich pipeline. Also worth mentioning is the fact that Novartis is aware of the competition from generics once patent for its products expires and is ready to counter the threat through its Sandoz division focused on the development of generics.
Read more

Avoid PepsiCo: A Story Of Low Grow, High Competition

PepsiCo (PEP) is the largest food and beverages business in North America and second largest in the world. Coca Cola (KO) - the company's main competitor holds the number one position in the industry. PepsiCo has a $106 billion market capitalization and operates in almost 200 countries. We recommend a neutral rating on Pepsi as KO offers better growth prospects than PepsiCo.

PepsiCo has a forward P/E of 16x, which is on the lower end as compared to KO and higher than DPS. However, PepsiCo's PEG of 4 reflects that the company offers an expensive growth as compared to its competitors KO and DPS. PepsiCo has a lower growth rate of 4.2% per annum for the next five years as compared to 7.75% of its competitors.
Read more

Buy Citigroup For Strong Capital Position And Attractive Valuations

Citigroup has attractive relative valuations compared to its peers in the U.S. money center banks sector. The stock that has seen over 37% appreciation in price is trading at a 43% discount to its book value. This is compared to a 53% discount and a 20% premium for Bank of America and Wells Fargo. Using a book value multiple of 0.68 times, we arrive at a target price of $43.2 for a stock that is currently trading at $36.1. This gives investors an upside potential of 20%. The consensus mean price target is $42.9.

In conclusion, we believe the bank could face a significant risk if the economic recovery in Asia doesn't pick up. However, the bank has strong fundamentals and attractive valuations compared to its peers. Therefore, we reiterate our buy rating on the Citigroup. Find more here.

Buy Cisco Systems: Things Will Only Get Better For This Cash Rich Technology Giant

Cisco has announced that it has finalized its acquisition of Meraki Inc. The company has paid $1.2 billion in cash and retention based incentives for the acquisition and expects the deal to be closed in 2Q2013. Meraki is a US based company that is the first cloud based network infrastructure company in the world. It provides cloud-managed access solutions including access switches, WiFi, security appliances and mobile device management. The company has more than 18,000 customers, spread over 145 countries, with clients across a diverse range of sectors such as healthcare, industry, government and so on.

Smartphones and handheld devices are increasing data demand and CSCO is one of the primary beneficiaries of this revolution. Going forward, we believe that growth will remain stable for CSCO due to increased penetration by smartphones/tablets in China and India. Read More

NRG Energy Driving Growth From Texas

NRG Energy (NRG) recently announced its earnings for third quarter 2012. We are bullish on the stock because of its expected synergies, cheap valuations and strong liquidity/cash position for the company. The company has been working to improve its efficiency and cost savings.

For the first time in August, NRG declared its quarterly dividend of $0.09 per share, a dividend yield of 1.7%. With its FCF expected to be $900 - $950 million for 2012, free cash flow yield turns out to be 19%, which is a healthy sign and indicates that dividends would be sustained without any problem. If we look at the liquidity position of the company, it experienced an improvement of 30%. Total current liquidity for the 3Q 2012 was $2.71 billion up from $2.07 billion in 3Q 2011.

NRG has cheap valuations on a comparable basis. It has a price to book of 0.6x, less than that of its competitors. Its PEG of 2.6 also reflects that it offers cheap growth as compared to its competitors, TAC and CPN. NRG also has a strong balance sheet, evident by its debt to equity of 140% as compared to AES' 215% and CPN's 260%. Find more.

Navistar Addresses Investors' Concerns

Analysts have recently turned in favor of Navistar (NAV), the truck manufacturer, after the company made a secondary offering that has addressed some of the questions regarding liquidity. Also, the street seems to be excited about the management's transition plan which is now more attainable after the improved liquidity status. There are 5-6 important catalysts that are expected to move the stock such as initiation of Cummins (CMI) manufactured engines in January, their EPA approval, reduction in engine losses, realization of savings through the cost-cutting program and improvement in truck net price realization. It becomes clear why Baird has recently upgraded NAV from Neutral to Outperform.

The stock was recently upgraded by Baird due to its cheap valuations. Baird has raised the price target from $20 to $30. The company's earnings are expected to grow by 5% per annum for the next five years. We are bullish on the stock as most of the investor concerns have been addressed by the company's management. Read more

Potash: 2013 The Year Of Demand Recovery

The recent figures by Potash Corporation of Saskatchewan (POT) may have come as a surprise to analysts but we have been saying it all along that we expect demand to rebound in 2013, particularly once contracts with India and China are settled. The fundamentals for the industry remain strong. We have a bullish rating on POT for long-term investors.

Potash is trading at a forward P/E of 11. It has a dividend yield of 2.2 percent compared to Mosaic's dividend yield of 2 percent. Both POT and MOS are down YTD, POT by 14 percent and MOS by 6.6 percent. The earnings growth rate for MOS is 8 percent compared to 2.6 percent for POT. Read more 

Q3 Results Make Comcast A Growth Story

Shares of Comcast Corporation (CMCSA), a communications and cable services company, have had a staggering run in the year so far, gaining almost 50% in value. The company ended the third quarter on a high as it reported growth across all major business metrics.

Comcast Corp. is a leading media and communications company involved in operating cable networks as well as broadcast networks such as NBC. Moreover, the company also provides video, internet and phone services to its residential and corporate customers. It has a market capitalization of approximately $95 billion with its shares trading near $35 on NASDAQ.

CMCSA is trading at 16 times its forward earnings, which is higher than DISH Network Corp's (DISH) 14x. Currently, 72% of sell side analysts rate the stock as a buy, none of the analysts rate it as a sell, and 25% have a hold rating for the stock. Median price target for the stock is $42 and based on the recent strong results posted by the company, coupled with its growing cash flows from all business segments, we believe it has further upside potential. This makes the stock an attractive option, especially after accounting for its dividend yield. Read more.

Citigroup Tops Forbes' Weekly Insider Buys

Citigroup (C), among the rest of the U.S. money center banks, remains one of our most favored banks. The recent insider buying activity by one of the bank's directors, William Thompson, prompted Forbes to place it in its weekly top insider buys. As the directors are considered to have greater insight into the company's future, this insider activity shows the director's confidence in the bank's future growth in the challenging macroeconomic environment. This, combined with cheap relative valuations, supports our bullish investment thesis on the bank. Therefore, we reiterate our buy rating for the stock. During the past 3 months, 16 buy transactions were conducted by insiders, involving over 8,600 shares of Citigroup.  

The bank has attractive valuations as compared to its peers in the U.S. money center banks. The Citigroup's stock, that has seen over 67% appreciation in price since the beginning of the year, trades at a 43% sizable discount to its book value, compared to 19% premium to the book value for Wells Fargo (WFC).
Find more about it.

Light At The End Of The Tunnel: After A Disappointing Quarter, Dell Has Upside Potential

Dell Inc. (DELL) reported its quarterly results yesterday, missing earnings and revenue estimates. The performance of the PC business was below par, but Data Center product revenue gives hope for the future of the company. The Enterprise segment is characterized by high margins, in contrast to the PC segment where Dell faces a year-over-year shipment decline of 13.7%. The company still has approximately $4.2 per share in net cash and is trading at around $9.5. Therefore, we believe Dell has very limited downside and the growth in its Enterprise Solution segment is a positive sign. We are giving a buy rating to Dell, and believe that these results indicate that HP (HPQ) will miss its earnings estimates of $1.14.

We maintain our buy rating on Dell despite an abysmal quarter due to limited downside potential. We also like its encouraging performance in the Enterprise Solutions segment, cheap valuation (forward P/E of five times), and the positive effect expected from Windows 8 on future PC sales.
Find more about it.

Recent Price Dip Ideal For Investors To Buy Utilities

The utilities sector has offered a decent risk-adjusted return in the last year or so. A glance at Utilities SPDR ETF (XLU) reveals that it was up more than 8% YTD in August this year. Macroeconomic uncertainly and historic low-level for treasury yields have made utilities an attractive investment option. Utilities are low-risk companies and offer attractive dividend yields.

We have a positive outlook on utilities as they offer high dividends with low risk and the recent price dip makes an ideal entry point for investors to buy XLU. Read more.

Current Undervaluation Provides An Ideal Entry Point In Energy Transfer Partners

Although Energy Transfer Partners (ETP) posted weak third-quarter results chiefly because of the dismal natural gas market, we believe the partnership has made sound strategic moves in the energy sphere and seems well-poised to increase its distributions in the near future. The merger with Sunoco Inc will prove to be the right catalyst for the partnership's success and we hold that the current undervaluation in the market provides the right time to make an entry.

ETP has a debt/equity ratio of 125%, interest coverage of 2.5x and cash from operations (TTM) of $1.25 billion. Currently, ETP trades at an EV/EBITDA multiple of 12x and given the fact that the SUN deal provides ETP with the much-needed diversification and potential higher distributable cash flows in the future, we believe the units are undervalued in the market. As seen from the table above, ETP is trading at a 25% discount to its competitors EV/EBITDA multiple.

Read more

Don't Bet On Alcatel-Lucent's Turnaround

Telecom equipment maker, Alcatel-Lucent (ALU), announced its quarterly results last week. The results were no different from previous quarters in which the company reported losses as well. In the third quarter the company generated revenue of 3.60 billion Euros ($4.62 billion), down approximately 3% from the third quarter of the previous year. Analysts were expecting the company to report revenue of 3.50 billion Euros ($4.50 billion). Despite the revenue beat, ALU posted a loss of 156 million Euros ($200 million) compared to a net profit of 220 million euros ($283 million) in Q3 2011.

ALU has lost almost a third of its value since the start of the year. However, the worst decline came just after the company reported its results for the third quarter, losing almost 10%. ALU is trading at 13 times its trailing earnings, a premium of over 200% to its historic average. Forward price to earnings multiple of 20x for ALU is also much higher than Ericsson's (ERIC) multiple of 13x, indicating that the stock is expensive on valuations. Since our last report, the stock is down 12%, and we reiterate our previous sell stance based on continued operational deterioration for the company and expensive valuations.

Read more

4 Reasons To Buy Home Depot Now

The Home Depot (HD) - a leading US-based home improvement retailer - seems to have benefited from the improvement of housing market. The Dows Jones would have suffered a lot because of Fiscal cliff and Greece-related issues if HD had not provided support. The Dow was up by 50 points on November 13, 2012. About a third of this rise can be attributed to HD.

The Home Depot is a company with impressive operational performance. Its stock has more upside than the stock of many competitors. The company has a brilliant strategic horizon. We believe that HD will be able to capitalize on many catalysts which would not be the target of many competitors. This would mainly be because of its ability to leverage strong operations and profitability.
Read more

Colgate-Palmolive: An Example Of A Great Business Model But Not A Great Stock To Buy

Colgate-Palmolive Company (CL) reported its third quarter performance. Earnings for the quarter were in line with expectations, however sales volume grew by 2%, which was less than what was expected by the market. CL has a great business model and we are bullish on its business model, but we think current valuations are high if we compare them with its competitors. We recommend investors not to buy the stock before a valuation/price correction.

CL offers a dividend yield of 2.4%. Quarterly dividends for the company have increased from $0.4 in 2009 to the current $0.62. We believe the company's dividends are sustainable because it has a robust operating cash flow yield of 6% and a free cash flow yield of more than 4%. 

More than three quarter of the company's sales are derived from markets outside the US, which makes currency exposure a serious risk to the company's financial performance. Weak consumer spending and pressure from commodity prices also add up to the risk associated with the company's top and bottom lines. 

Read more

Radian Group - Wait Before You Buy This Mortgage Insurer

The U.S. housing markets are enjoying a healthy recovery as represented by the National Case Shiller Price index, which is at a level of 131.08, up from last year's level of 128.2. New homes and apartments are being constructed at the fastest rate since 2008. That's also the case with the newly requested building permits. While the U.S. housing markets are on their way to a rebound, the U.S. private mortgage insurers, particularly the big three, are facing difficulties, according to a report by Barron's. Shares of the companies plunged more than 10% the day the report was published.

In conclusion, despite better-than-expected third-quarter results and an improvement in the latest operating statistics, we believe Radian still has to go a long way before we recommend the stock to our investors. Therefore, we reiterate our neutral rating on the stock. Read more

Sturm, Ruger & Co: Bulls Win Over Bears For This Gun Stock

Sturm, Ruger & Co (RGR) posted impressive performance figures in its third quarter's earnings release. The company topped both revenue and earnings' estimates. Both gun manufacturers and gun stock investors have been enjoying positive surprises in this election year the same way they benefited back in 2009. In the last three quarters, the company topped all of its earnings' estimates.

The company pays a healthy dividend yield of 3.39%. The dividend varies every quarter as the company has a policy of paying dividend as a percent of earnings rather than a fixed amount. The current percentage is 40% of net income, and the company has no debt. Cash reserves were up by $24 million from December 2011, ending up at $105.1 million. Find more 

JetBlue: The Low Cost Airline Posted The Best Q3 Results

JetBlue (JBLU), the low-cost airline, reported its earnings for the third quarter on October 25. The company topped its earnings estimate and met its revenue expectations. Investors were delighted with the results, considering that Delta Airlines (DAL), only a day ago, reported results that missed both revenue and earnings estimates. Also, the results for US Airways (LCC), though satisfactory, raised some concerns within the investor body after the airlines reported a decline in yield and PRASM in their mainline business stream.

The improvement in flight schedules after the second winter storm (after Sandy) came quicker than what the market had expected. Also, oil analysts were reported saying that US oil inventories and production are high and therefore fuel prices are expected to fall in the near-term. Despite the pilot shortage problems, JBLU seems like a growth story and a lot will depend on how it manages its ex-fuel operating costs, especially maintenance costs, as the fleet is going through a heavy maintenance cycle.

Read more

Will Gold Hit $2,000 Mark? Which Gold Stocks To Buy?

Gold prices are headed for their 12th straight annual gain. Investors are concerned that central banks and governments across the world will continue with their loose monetary policies and will add more stimulus measures to promote recovery and deal with the European debt crisis, resulting in a devaluation of currencies and higher inflation.

Gold is up 10 per cent YTD and from December 2008 to June 2011, as the Fed bought $2.3 trillion worth of debt in the last two rounds of QE, precious metals rose by a whopping 70 per cent.

For a detailed analysis of NEM please refer to our previous article on the stock. For ABX and AUY please read this article.

Weak Demand Forecast For Trina Solar Renders Us Bearish

We reiterated our bearish stance on Trina Solar (TSL) two days back and from that point on, the stock has shown a decline of 19 percent. We maintain our negative stance on the stock after looking at the cut in the company's third quarter guidance for profit margins and shipments. The company cut its guidance due to duties worth billions of dollars on the imports of solar equipment from China to the U.S. The company's high inventory level, imbalance in demand and supply and continuously decreasing profitability are growing concerns for investors.

TSL is trading at a high price to sales valuation of 0.12x, at a premium when compared to its peers-Suntech Power (STP), JA Solar (JASO) and Yingli Green Energy (YGE), with price to sales of 0.06x, 0.11x and 0.11, respectively. It is trading at a discount when compared to First Solar's (FSLR) P/S of 0.69x. The company has a high debt to equity ratio of 127%. The stock is also burning cash. We do not see any plans from the company to cope with the regulatory threats and diversify its business to other emerging markets. Therefore, we advise investors not to take long position in the stock. Read more 

Expect Storms Ahead; International Energy Agency Predicts Low Oil Demand For Q4

Due to the recent Hurricane Sandy in the United States, slow economic growth in China and European economic headwinds, the International Energy Agency has cut its global oil production demand forecast. OPEC and the United States Energy Information Administration have already cut down the future oil demand forecast due to the prediction of slow economic growth going forward. In our opinion, the gloomy macroeconomic environment, structural transformation towards natural gas and the emerging alternative renewable forms of energy are going to be the key factors responsible for the decline in oil demand.

The impact of this cut in forecast has been seen in the decreasing Brent crude oil prices. After this news, Brent crude oil price fell  to $107.81 from Tuesday's price of $108.14. We believe that if European economic problems sustain going forward, prices will show a further decline. Read full story

Don't Buy Leap Wireless: The Stock Is Not Cheap

Leap Wireless (LEAP), a flat rate telecom carrier, has had a terrible year in terms of stock performance, losing more than one third of its stock value. The latest results posted by the company further confirm our previous stance on the stock. Even though the company had its first profitable quarter since 2007, it was largely due to a $130 million gain from spectrum sales. The company continues to bleed customers and almost all its key business metrics are deteriorating. We reiterate our previous stance because weak subscriber trends for the company are likely to continue and with cost per gross additions on the rise, its margins will stay under pressure.

Leap is trading at cheap valuations, as is reflected in its multiples. Almost all of its multiples are at a discount to those of its peers. However we do not consider the stock to be undervalued. It can be considered undervalued only if the company is able to expand its margins and bring customer growth. Read more 

France Telecom: An Opportunity To Buy This 10% Dividend Yielder At 52-Week Lows

We are bullish on France Telecom (FTE) despite the recent dividend cut as the company is on track to meeting its full year guidance. Despite tough economic conditions in the region and fierce competition, the company has succeeded in bringing back customer growth domestically with solid growth coming from its African and Middle Eastern segments. Currently, the stock is trading near $10.50, almost 1% off its 52 week low and we believe this could be a good entry point for investors seeking capital appreciation and dividend income. The recent dividend cut implies a dividend yield of almost 10%. The stock is trading at a forward P/E of 6x which is at a discount to its competitors.

The company's management has confirmed its FY12 guidance for operating cash flows to be close to 8 billion euros. Its cash flows are under constant pressure due to discount offerings by its peers, however, it seems likely that the company will be able to meet the 8 billion target based on the recent results.
Read more

Research In Motion: Don't Jump On The BB10 Bandwagon Yet

The smartphone market is not in its formative stages anymore. Google's (GOOG) Android and Apple's (AAPL) iOS are the leading operating systems in this competitive market. Microsoft recently launched its Windows 8 and WP8 in a bid to create a universal eco-system which is consistent across various devices. The reception of WP8 and Windows 8 has been lukewarm so far. It remains to be seen if it can give Android a run for its money. If we analyze competition among operating systems, the only competitors for RIMM are Android and Windows based devices. This is because, the second largest smartphone operating system-iOS, is limited only to Apple based devices. Therefore, any new venture of Research in Motion (RIMM) would face challenges from Android and Windows 8.

The future of RIMM is still uncertain. The new BB10 is user-friendly and there have been positive developments on the applications front. However, the high competition in this sector warrants that no long-term decision be made before initial sales figures come in. In the short run, investors can make money from the launch event because we believe the stock will see an upside as the launch date approaches. We are giving a hold rating for long-term investors until sales numbers for devices using BB10 are revealed.

Read more

Fall From Eminence; A Paradigm Shift In Goldman Sachs' Business Model

The challenging macroeconomic environment is forcing more and more investment banks to slash their costs and overheads in order to maintain their profit margins. Fitch, a premier US credit rating agency, declared in a report that further cost cuts and concentration are highly likely among US banks. The credit rating agency believes that banks will increasingly concentrate on areas in which they have a competitive advantage. Most of the investment banks are already taking steps to restructure their businesses. While UBS is aggressively decreasing the workforce of its investment bank, Goldman Sachs (GS) and JPMorgan (JPM) are concentrating on reducing costs and overheads.

In conclusion, where the recent quarter's results are encouraging, we believe the bank still faces problems in attracting and retaining professional workforce. Also, the bank is overvalued compared to its peers. Therefore, we do not recommend our investors to take a long position in the stock. However, proper integration of technology to increase operational efficiency could create a competitive advantage for the bank. Therefore, investors should be on the lookout for any updates on this front. Read full story 

Color Me Bullish - Mosaic Remains A Buy As Industry Fundamentals Remain Strong

The Mosaic Company (MOS), after the market closed Nov. 13, cut its Q2 2013 guidance forecasts for potash and phosphate sales due to uncertainty surrounding new contract agreements with India and China, the two biggest consumers of Potash. Mosaic's fiscal year ends in May.

Since MOS reported its new guidance, both MOS and POT are down by 3% and IPI by 1%. We are bullish on POT, whereas we have a neutral stance on IPI in the short term. However, as mentioned earlier, we have a bullish view on the industry, and we believe that the industry fundamentals remain positive. We are expecting strong performances from these companies in 2013. 

For a detailed analysis of Mosaic, please refer to full article on the company.

And The Giant Came Falling Down: Deteriorating Metrics For 5.8% Yielding Vodafone

Vodafone Group, a U.K.-based telecom giant with a presence in over 30 countries and serving over 400 million customers worldwide, recently announced its half-yearly results for 2012-13. It reported a net loss of 1.98 billion pounds compared to a profit of 6.68 billion pounds in the same period a year ago, largely due to the deterioration in its southern European operations. The said deterioration led the company to write down the value of its Spanish and Italian businesses by 5.9 billion pounds. The top line remained under pressure as well due to weaker spending in the region, with its service revenue dropping by approximately 1.5% in the second quarter, which also marks the first quarterly decline in 10 straight quarters.

Vodafone is trading at 10 times its forward earnings, a premium of 62% over the multiple of Telefonica (TEF), its Spanish rival. On a price to sales basis as well, VOD looks overvalued, trading at a premium of 150% and 250% over Telefonica and France Telecom (FTE), respectively. Find more

SEC Investigation Overshadows Better-Than-Expected 3Q Results For Molycorp

We last covered Molycorp, Inc. (MCP) at the end of August and advised investors to avoid the stock. Our stance on the company has not changed since then, but there is another reason to avoid the stock now.
A day after MCP surprised the market by posting better-than-expected results, the company told  investors that it is being investigated by the SEC for the accuracy of its public disclosures. The SEC requested information from the company on Aug. 28 in connection with a formal order of investigation pertaining to, among other things, the accuracy of the company's public disclosures.

MCP's financials are not very impressive. The company is trading at a forward P/E of 16 times. Despite its expected long-term growth rate of 20%, there is a lot of uncertainty regarding future sales. MCP's stock has gone down by more than 70% year to date. The stock is currently trading at ~$7. Read more

Why Is Qualcomm The Best Technology Stock To Buy?

Qualcomm (QCOM) is the largest semiconductor supplier of the smartphone industry. The company holds a 36% stake in application processor shipments and, according to IDC, the smartphone industry is growing at 45% per annum. Qualcomm, much like Apple (AAPL), is followed closely by analysts and investors. This makes meeting expectations very difficult, let alone beating them. Still, QCOM has beaten analysts' estimates in 3 of the last 4 quarters. We believe that the margins of smartphone semiconductor companies will expand as they get more bargaining power in a maturing industry. We have a buy rating on QCOM.

QCOM is still very cheap, with a P/E of 14x. Our research shows increasing sales and margins going forward. That is why we still believe that QCOM is the best placed technology stock and give a buy rating for QCOM. Read more

Apple: What's The New Price Target?

We have been advising Apple (AAPL) investors to realize profits as the new iPhone 5 was being launched. In our recent Apple update, we gave a sell rating to AAPL and forecasted that the stock will fall below $600. Our valuation gave a price target of $579 for 2013. Apple did miss earnings targets and the stock dipped below $600, as we had predicted. Those who are bullish on Apple are arguing that the stock has bottomed out and is trading at an ex-cash P/E of 8x. The calculations below show that the stock is still trading at around our new 2013 Price Target (PT) of $549 and, therefore, does not have a big upside. Our PT has gone down despite good iPhone 5 sales because Apple's margins have squeezed, as we expected.

A lot of people believed that it would be hard to fill Steve Jobs' shoes and the recent developments have shown that such people may be right. The Apple Maps fiasco and iPhone 5's problems are some of our concerns regarding the post-Steve Jobs Apple. The rapid changes in the Mobile technology sector in the form of the Lumia 920 and Galaxy S3 are disconcerting, to say the least, for Apple. iPhone would be facing tough competition from S3 and Lumia in the holiday season. We still believe that the iPhone 5 will lead the market this year, but its shrinking margins have made us revise our Price Target for 2013. We believe the stock is trading very close to its 2013 PT and there is very little chance of an upside. We are still not bearish about the long-term prospects of Apple, but we believe that the response to the iPad Mini and its margins would be vital to future valuations of AAPL.

Read more

Avoid These 2 Solar Stocks Whether China Increases Subsidies Or Not

Chinese solar stocks Suntech Power (STP) and Trina Solar (TSL) have shown an upside of approximately 5% after the Chinese government started talks to provide more subsidies for solar companies. In our opinion, the Chinese government will probably approve the subsidies for the time being, but it doesn't have the capacity to inject such large amount for a long period. We will see in response that Europe and the United States will likely further increase the tariffs, as they did before, and make things worse for the Chinese solar companies. Moreover, these companies are encountering many problems and don't have any lucrative projects to restore their high growth levels of the past. Therefore, we recommend investors avoid taking any positions in Suntech Power and Trina Solar.

It looks as if STP and TSL are trading at pretty cheap valuations. Both of the companies are trading at low P/S, P/B, and EV/revenue multiples; however, we think that these valuations are a value trap. To bring growth to revitalize their positions is a matter of concern for these companies. Chinese solar stocks are burning cash at an alarming rate, debt levels are too high, and we don't see any plans from the companies to cope with the current situation. Therefore, it is not advisable for the investors to take any positions in the aforementioned stocks.

Read more

Draught And Delays In Potash Contracts Stifle Earnings But Outlook For Agrium Remains Positive

The delay in the signing of new potash contracts with India and China continues to weigh heavily on fertilizer producers. Agrium Inc (AGU) is the latest to report a significant drop in earnings. The Canadian fertilizer producer's quarterly profits dropped by 56 percent compared to the same quarter of last year. Moreover, the company is also expecting a weaker fourth quarter due to the same reasons.

Agrium is a major North American fertilizer producer with exposure in potash, phosphate, and nitrogen. The company produces and markets agricultural products to both wholesale and retail customers.

A steep decline in prices of agricultural commodities across the globe due to capacity expansions and an increase in natural gas prices are key risks to our analysis. Read more

All Is Well That Ends Well; Acquisition By Gilead Sciences Pays Off

Gilead Sciences, Inc. (GILD) on Saturday posted spectacular interim results for the Phase 2 of its Electron Study, the results of which will be presented today at the annual meeting of the American Association for the Study of Disease in Boston. The study examined 25 patients with genotype 1 chronic HCV infection who were treated for 12 weeks with three drugs: sofosbuvir, ribavirin and GS-5885. The study revealed that patients who had never received the combination of the drugs before witnessed a reduction in the infection to undetectable levels. The results point towards the effective use of sofosbuvir-based all-oral regimens. We reiterate our positive stance on the stock.

The stock is up ~11 % since our last  buy recommendation. We pointed out that results from the aforementioned study should be watched closely by investors. Although we remain optimistic about the performance of the company once the HCV drug hits the market in 2015, we additionally based our investment thesis on the idea that Stribild will continue to drive revenue growth due to its dominant position in the HCV market. This position will be bolstered further with the launch of the product. Read more

Annaly Capital's Diversification Out Of Agency MBS

On the 12th of November 2012, Annaly Capital (NLY), one of the large cap US Agency mortgage REITs, announced the proposed acquisition of CreXus Investment (CXS) for a price of $12.5 per share. CreXus is a commercial mortgage REIT that does not only invest in agency residential mortgage backed securities but also in commercial mortgage loans and other commercial real estate debt. It also invests in commercial real estate property, commercial mortgage-backed securities and other commercial real estate-related assets.

In conclusion, Annaly Capital's move to acquire CreXus may be enough to put a floor on the company's share price. Annaly has sufficient cash from operations to support the acquisition. The acquisition will help reduce the downward pressure on Annaly Capital's net interest margin and, ultimately, to improve its bottom line. Therefore, we recommend investors to long Annaly Capital in order to benefit from this proposed acquisition. Read more

Dividend Growth Of Newmont Mining: A Story Of Rising Costs And Declining Production

Although gold prices increased recently and a majority of the analysts interviewed by Bloomberg remain bullish on the commodity in the short term, we have a neutral rating on Newmont Mining Corporation (NEM). We believe the company has a strong base of operations but the rising costs, particularly at its APAC operations, and declining production remain as concerns for NEM.

NEM is trading at a forward P/E of 9.7x. The stock has a dividend yield of 2.90 per cent that is attractive to dividend seeking investors. The stock has lost 21 per cent of its value YTD. The stock has a mean recommendation of 2.6. Out of 22 sell side analysts, 13 have a hold recommendation, 8 buy, and 1 strong buy whereas none has a sell recommendation. Read more

AT&T: Limited Dividend Growth For This Dog Of The Dow

AT&T (T) is one of the dogs of the Dow, which is a strategy designed to pick ten stocks offering the highest dividend yields from the Dow Jones Industrial Average. Under this strategy, an investor who purchases these stocks should outperform the market benchmark on a total return basis. The telecom industry in the US is characterized by companies that boast high dividend yields. AT&T recently announced that it will increase its quarterly dividend to 45 cents per share, which roughly translates into a dividend yield of 5.4%, based on the current share price of $33.20. In the rest of the report, we will discuss the company's cash flow position and the sustainability of its high payout.

The stock is up 10% on a YTD basis, however, we believe that much of this appreciation has been brought about by investors seeking a stable dividend. Based on its multiples, the stock is overvalued. T is trading at 13.5 times its forward earnings while historically it has traded at 11x. Moreover, on a price to sales basis, the stock looks expensive with a multiple of 1.5x, at a premium to Sprint's (S) 0.5x and Verizon's 1.1X. With shares trading at the current level, investors seeking growth should wait for a better entry point. Read more about this

Why Is Toyota Motor The Best Auto Stock To Buy Now?

Toyota Motors' (TM) stock surged more than 2% when the automaker reported a net profit of $3.2 billion, which was more than three times its net profit a year ago. Revenue also increased by 18%. The Japanese automaker performed well in both Japan and North America, the two regions from which it gets most of its revenue. The company has been losing out in China due to the Senkaku/Diaoyu island dispute between China and Japan. However, despite a massive loss of sales in China, the company still managed to push the global net profit forecast up from $9.45 billion to $9.7 billion, which reflects its strong performance in other parts of the world.

The company is focusing on trimming its costs. The company has increased its forecast for net profits but lowered the revenue outlook for 2012. TM expects to save almost 300 billion Yen in profits this year.
The company sold a total of 7.4 million vehicles in the first nine months of the year. That is more than the sales of any other car manufacturer in the world. Therefore, the company is well on its way to becoming the leading carmaker of the world, a position that it enjoyed from 2008 to 2010. The important thing to mention here is that the improvement in sales and market share did not come from incentives because the company had scaled back its discount. The average incentive per car dropped from $2,368 a car in the same period last year to $1,899 for this quarter.

The stock is currently trading at a cheap multiple of 9x. It also pays a dividend yield of 1.91%. The company topped three of its last four earnings estimates. The sell-side expects the company's earnings to grow by 41% per annum for the next five years. Read more

Why Will Agency Mortgage REITs Get Hit The Most From QE3?

The announcement and the launch of the much-awaited third round of quantitative easing (QE3) by the U.S. Federal Reserve (Fed) has had mixed effects on the U.S. mortgage industry. Mortgage REITs are put in a difficult position as the street and investors in general welcomed Fed's new initiative to stimulate the sluggish US economy. Though we believe the interest spreads at agency mortgage REITs will be hurt, mortgage REITs that invest primarily in non-agency REITs will benefit. Mortgage REITs, which have large proportions of adjustable-rate securities in their holdings, will be least hurt by the acceleration in prepayments. Therefore, we recommend long positions in non-agency mortgage REITs. The remaining of the investment thesis aims at discussing the effects of QE3 on agency mortgage REITs (Annaly Capital (NLY) and American Capital Agency (AGNC), mortgage REITs that invest exclusively in adjustable rate securities (CMO), non-agency mortgage REITs (Newcastle Investment (NCT) and PennyMac (PMT)), and mREITs that hold a combination of agency and non-agency mortgage-backed securities MFA Financials (MFA) and Invesco Mortgage (IVR).

We believe if the Fed accelerates its bond-buying program, the agency mortgage REITs will take a major hit as far as their net interest margins are concerned. In this scenario, we recommend investors buy mREITs that invest in non-agency mortgage- backed securities. Read more

1 Iron Ore Stock To Buy To Play A Rebound, 1 To Avoid

The iron ore market is showing signs of improvements, as prices increased to a three-month high and Brazil reported the third highest shipments ever in a month. However, as we will discuss later, the market still remains balanced and investors are looking at what actions the new leadership will take in China to boost steel demand.

We have a bullish stance on Vale S.A. (VALE). We think that this low cost producer with its long life reserves and strong balance sheet is well positioned to benefit from a rebound in iron ore prices. Vale is also offering a dividend yield of 3.4 per cent. However, the CLF Natural Resources (CLF) has operational concerns and it might cut dividend if prices do not rebound. Other than a dividend cut, raising capital and selling core assets are the other two options for CLF. We would advise investors to avoid this iron ore stock for the time being.

Vale is trading at a cheaper forward P/E ratio of 7.4x against its peer CLF which is trading at 9.4x. Vale has a dividend yield of 3.4 per cent and CLF's dividend yield of 6.9 per cent is almost double that of Vale's; however, we believe Vale's dividend yield is sustainable. Both stocks have lost value YTD. Vale is down 22 per cent whereas CLF is down 46 per cent.

Read more and see the full Analysis.

AK Steel: A Steel Stock To Sell Despite Price Hikes

Scrap prices have increased marginally because scrap demand has increased and mills are trying to build up inventory before the winter season. However, overall steel demand remains depressed and we believe AK Steel (AKS) is facing a double-edged sword as costs increase and demand remains depressed. We maintain our sell rating on AKS.

AK Steel produces flat-rolled, tubular, stainless and electrical sheets as its primary operations, in the U.S. and internationally. Construction, automotive, power distribution and appliances, and industrial machinery and equipment serve as AKS' primary markets.

 We believe STLD is in a good position to benefit from a rebound in steel prices because of its high operating margins, diversified product mix, growth projects in the pipeline and vertical integration.

Read full story

Down In Its Own Rubble; The Sorry State Of J.C. Penney

J.C. Penney (JCP) is a struggling company with blurred strategic horizons and increased loses. Strategic revamping by changing layouts has been the key strategy of J.C. Penney this year. The company has tried to develop mini stores within stores but the strategy has faced many issues because of a deviation from the core competitive advantage i.e. promotions and low pricing.

Form a financial perspective, the company is not attractive to investors. The company has been facing loses and is trading at a very high P/E and EV/EBITDA, showing that the stock is overvalued. The new concept of Boutiques at the stores has posed many challenges as the company has annoyed many customers. This has made sales drop and customer loyalty to shift.

Although the company plans to focus on growth next year, we suggest a bearish stance until the efforts for the new mission start yielding benefits. We don't expect the stock to move up much and therefore have a sell rating. Read More

CenturyLink: 7.4% Dividend Stock Has New Growth Drivers

We reiterate our previous long stance on CenturyLink Inc. (CTL), which is based on its strong quarterly results and potential for future growth in the data center business. The company has successfully brought about a slowdown in its revenue erosion. Line loss trends are improving with strong growth coming from Prism TV and high-speed broadband, which will continue to be the growth drivers going forward. Moreover, its recent move into the data center and cloud computing business will help the company in offsetting the shrinking wire-line business and can be identified as another growth driver. High dividend yield of 7.4% is well supported by its forward free cash flow yield of 14% and the company is well on track to meet its free cash flow target for the year. Operating cash flows are on an incline as well, which further indicates the company's ability to sustain its payout.

The stock is currently trading near $39, 12% off its 52-week lows. Currently, 35% of sell side analysts have a strong buy rating on the stock, 39% issuing a buy rating and 26% recommend holding the stock. CTL is trading at 15 times its forward earnings, which is in line with the forward multiple of Verizon (15x). When compared to Equinix (EQIX), which is a leader in collocation and data center business, CTL looks undervalued. EQIX is trading at 56 times its forward earnings (high valuations for data centers in an industry norm because of high expected growth rates).
Based on sell side EPS estimates of $2.69 for the financial year 2012, we arrive at a target price of $41. The target price of $41 roughly translates into a capital return of 5% on the current share price, which, coupled with a dividend yield of 7.4%, brings the total expected return to 12.4%. Wireless substitution and further line losses remain key risks to our thesis. Read more

2 Copper Stocks To Buy: 1 For Dividends, 1 For Growth

Today we will talk about two copper stocks we have a bullish stance on. We believe Freeport-McMoRan Copper & Gold Inc (FCX) has a strong balance sheet, increasing cash flows, good dividend yield, and due to its cheap valuations, it is the best copper stock to play an economic rebound. Southern Copper Corporation (SCCO) has great value in its expansion projects, which we believe are not priced in the stock. Moreover, the stock has a very attractive dividend yield for dividend seeking investors.

FCX is trading at a forward P/E of 8.36, while SCCO is trading at 13.84. SCCO and FCX have PEG ratios of 1.39 and 3.35, respectively. SCCO has a sustainable dividend yield of around 10% per cent and a very attractive long term growth rate of 10 per cent as well.

In conclusion, as we said earlier, although copper prices are on a decline and inventory levels are high in China, we expect demand to improve in the near term. We believe that through a global accommodative policy environment by central banks, copper will outperform other LME metals. Read More

Disney: Dividend Growth Story A Buy After Today's Dip

Walt Disney Co. (DIS) recently reported its earnings for the fourth quarter, and for the fiscal year 2012. Both quarterly and full year earnings per share increased, by 17% and 24%, respectively, over the respective prior periods, in line with consensus estimates. However, the stock is down 6% in early trading, largely due to the revenue miss. Even though growth was seen in revenue on both a quarterly and a yearly basis, the 3% improvement in quarterly revenue was below expectations, causing the dip in shares. The weak commentary for the next quarter's ad revenues was also a reason for the drop in share price. We think this dip is an ideal opportunity to grab the shares. Currently, the company has a very low dividend payout ratio (20%) and as cash flows grow in the future, its distributions to shareholders will improve too. Disney has done a lot of investments in the past and now is the time to reap the benefits of these investments. Sell side is of the opinion that the company is transforming from an investment phase into a growth phase. If anything, this transformation will give the company excess cash to return to its shareholders. We are expecting DIS's dividend yield to increase in coming quarters.

DIS is trading at 12 times its forward earnings, at par with Time Warner Inc.'s forward multiple of 12x and at a slight discount to News Corp's (NWSA) at 12.3x. The stock is down 12% from its 52-week high of $53.40, largely due to the recent downward move after the earnings release. However, we believe that despite the slight revenue miss, the company had a good year in terms of revenue and bottom line growth. Its media and park segments will continue to bring growth, as the company has made investments in resort projects and cruise ships that are beginning to payoff. Moreover, the recent acquisition of Lucasfilm can be identified as another key catalyst. With a 1.2% yield, the stock remains attractive from a dividend standpoint. Read more

An Opportunity To Buy First Solar At Cheap Valuations

We reiterate our bullish stance on First Solar (FSLR) based on its impressive grid integration system, increasing conversion efficiency, high production and module efficiency. Its capacity utilization has considerably increased from 63% to 83% and cost per watt has decreased by $0.05 over the course of one quarter. The company has registered earnings of $1.27, which beats the analysts' estimates by $0.23 in the third quarter of 2012. The United States has imposed heavy duties on Chinese solar imports for the next five years, which will help FSLR to strengthen its market position in North America. The company's decline in average selling price and continuous drive to achieve grid parity are most important determinants for long term investors. The stock is attractive to investors due to its relatively cheap valuations. It is trading at EV/Revenue of 0.63x, at a discount when compared to the industry average of 0.7x. Its expected five year PEG ratio of 0.21 shows that investors can buy growth cheaply. We have calculated our 12-month target price of $97 (by using average four years EV/EBITDA multiple), with an upside of 320%. Therefore, we recommend investors to take a long position in the stock.

Our estimated 12-month target price is $97 with a considerable upside of 320 percent. FSLR is trading at a EV/Revenue of 0.63x, at a discount when compared to its competitors Yingli Green Energy and Suntech Power's EV/Revenue of 0.77x and 1.01x, respectively. On the other hand, it is trading at a premium when compared to its peers JA Solar (JASO) and Trina Solar's (TSL) EV/Revenue of 0.49x and 0.57x, respectively. The stock is trading at a price-to-sales ratio of 0.7x, EV/EBITDA of 3.9x and a forward price to earnings ratio of 5.9x. In our opinion, the company after capitalizing on its emerging markets growth would further improve its valuation multiples. Read More

Buy CF Industries To Play Growing Nitrogen, Agri Markets

CF Industries Holdings Inc (CF) reported better than expected third quarter adjusted EPS of $5.85 on the back of higher ammonia prices and lower than expected costs (favorable natural gas prices).

We have a bullish stance on CF because we believe that the current nitrogen fundamentals remain robust, and the company will not only continue to benefit from favorable agricultural and nitrogen markets in the next quarter, but in 2013 as well. Favorable grain prices and elevated farmer income will increase the application of fertilizers, which bodes well for the company's future. The company's cheap valuations and increasing nitrogen margins further support our stance.

A steep decline in prices of agricultural commodities across the globe due to capacity expansion and an increase in natural gas prices are key risks to our analysis. Read more.