Now that final numbers from 2008 have been filed for most large US companies, 24/7 Wall St. is picking several stocks that are likely to double off of their lows, almost all of which were set over the last two weeks. The time frame for these price increases is between now and the end of 2010, when many experts expect the economy to recover. A number of the credit and financial issues facing the markets will remain for the near-term. It may be well beyond the end of next year before the economy returns to the kind of GDP growth it had in 2006. The other assumption used for picking these companies is a market bottom of 600 on the S&P 500. If the index goes well below that, it is anyone’s guess how soon stocks will recover to the levels where they trade today.
Shares in Citigroup (C) jumped after CEO Vikram Pandit said that the firm was profitable in the first two months of 2009. Many experts said the statement does not mean much if Citi books huge write-downs of toxic assets or if consumer and business credit defaults rise for the first quarter. Even after the improvement in the stock price following Pandit’s comments, Citi trades at only $2.25. If Pandit’s statement holds true for all of Q1 2009 and the bank makes money and dodges losses due to balance sheet impairments, Citigroup will at least double. Even at $5 the stock will still be well below its 52-week high of $27.35.
Macy’s, Inc. (NYSE: M) has not been immune to the economic slowdown. This department store firm caters to the middle class, a part of the retail market which has been badly hurt by unemployment and tight consumer credit. Analyst expectations are for $0.53 EPS for 2009. A doubling of the stock still keeps this valuation at a forward P/E of 15. Analysts have been pessimistic about the shares. Earnings estimates for 2009 have almost been cut by almost by one-third in the last 60 days. Macy’s has lowered capital expenditures and closed a number of stores. This will keep revenue depressed, and to offset this Macy’s may have more layoffs this summer. Wall St. has warmed to the cost cutting and Macy’s has had three analyst upgrades since the beginning of March. A year ago this was a $25 stock, and it was a $40 stock two years ago. Macy’s went as low as $5.07 at the end of last year and a double to $10.14 wouldn’t be that be a significant move if there is any improvement in the company’s same-store sales trend. The stock currently trades at $7.90.
Sonic Corp. (NASDAQ: SONC) may be one of the more unusual and old-school hamburger restaurant chains in America. The shares have fallen from grace as because investors are concerned about its position as a suburban fast food business with a drive-in format. McDonald’s recent success has caused concern that it may be taking market share from smaller competitors such as Sonic. The stock moved down as gas prices went over $3 and commodity prices started to skyrocket. Recently analysts cut estimates by 15% for this year to $0.85 EPS. The flaw in these assumptions is that they are based on revenue at Sonic staying flat. While profits have dropped and same store sales have declined, there has been a marginal improvement in traffic now that Sonic has introduced a value menu. Earnings for the next quarter may be weak, but the worst is probably behind the company now. Sonic has high debt levels, but the lion’s share of does not mature until after two years from now. The stock hit a recent low of $6.05. If it doubles to $12 the shares would be barely above the $10 where they traded earlier this year.
CBS (CBS) is a dog of a stock and a dog of a company. Its efforts to improve its online presence by purchasing internet content company CNET have done very little for earnings. It is clear that CBS overpaid for the acquisition. But, the company has one significant advantage that has little to do with management. It has a huge footprint in the broadcast TV market. As national advertising revenue recovers, so will CBS’ earnings. CBS trades just below $4, down from a 52-week high of $25. In both 2007 and 2006 when the economy was relatively good, the firm made $2.6 billion on more than $14 billion in revenue. CBS may not get back to $25, but even a modest improvement in the marketing climate should allow the stock to double.
TheStreet.com (TSCM) depends on financial and high-end consumer advertising and a subscription business aimed at investors. A brutal market sell-off in addition to sharp cuts in marketing budgets for luxury goods and brokers have cut into TSCM’s growth. In the final quarter of last year, revenue fell 17% to $16.5 million. The company took an asset impairment write-off in the quarter, otherwise it would have operated at close to a breakeven down from a profit of $4.2 million in the same quarter a year ago. TSCM has over $76 million in cash, restricted cash, cash equivalents and debt securities available for sales. The firm’s market cap is $56 million. Shares trade for $1.91 down from a 52-week high of $9.49. TheStreet has already indicated that the first part of this year is not looking any better. Even a modest recovery in revenue in the second half should put the shares back over $4.
ConocoPhillips (COP) is not like most other major corporations with global operations in the integrated energy industry. Its stock has fallen more over the last year than Exxon Mobil (XOM) and Chevron (CVX), and has even underperformed the unattractive stock of BP plc (NYSE: BP). Warren Buffett has been a huge investor in this company and it has hurt his overall portfolio returns. Conoco’s last quarterly earnings were hurt as charges taken against earnings caused a loss of $31 billion. On a better note, the firm raised $6 billion through securities sales. Shares have fallen by about a third since earnings were released. ConocoPhillips was a $95 stock last year. Shares currently trade around $37.00 and for shares to double from lows the stock would have to move to $68. If earnings for either of the next two quarters are even modest the stock will move up. The recent rise in oil prices could help that, if crude stays above $45.
Yahoo! (YHOO) is a “one event” stock. It will probably lay off a large number of people this year. Display and search advertising may even improve. But, the catalyst for a sharp increase in Yahoo!’s shares is that Microsoft (MSFT) will make a very attractive offer to take over the portal’s search operation. It will bring in enough cash and have high enough royalty payments that the stock will move back toward where it traded a year ago at a little over $26, which is still short of the 52-week high.
Apple (AAPL) has fallen sharply as analysts revise downward their earnings for the year. Most have cut estimates for Mac, iPhone, and iPod sales. Expectations for the next two quarters are low which has pushed the stock to $95, down from a 52-week high of almost $200. Apple will continue to pick up market share in the handset and computer sectors, offsetting most of the effects of the overall softness in those industries. The Apple iPhone App store currently has 15,000 applications and more than half a billion downloads. A large number of software programmers are using the iPhone as their platform of choice. Apple sales will be better than expected.
Gannett (GCI) will never recover. That is the conventional wisdom. It is in the newspaper business which is dead. Its debt was recently cut to junk by Moody’s and it reduced its dividend. Shares have fallen from a 52-week high of $31.86 to $1.85. Over the last year, the stock has dropped as much as shares in some of its major rivals. but Gannett is by far the strongest company in the industry. Even if Gannett out of business in a decade, it prospects over the next year or two are reasonable. Last year Gannett had revenue of $6.8 billion, down from $7.4 billion the year before. After backing out a non-cash charge, the firm made about$1.2 billion, off from almost $1.7 billion in 2007. Gannett’s revenue will almost certainly be down again this year, but it should benefit from two things. The first is cost cuts it has already made along with more that it is likely to make and the very good chance that the company will begin to close money-losing properties. The print industry will never be close to what it was five years ago, but small recovery in national and local advertising combined with brutal costs cuts will keep Gannett on its feet. The stock should be down, but not to under $2.
General Electric (GE) is also trading higher over the last week based on the notion that its financial services unit could be profitable for the first quarter. If it is, and the conglomerate’s large infrastructure business and NBCU post modest results, Wall St.’s perception of GE will turn positive as quickly as it turned negative. If GE’s guidance is for a profit for the entire year in its financial operations and the company has moderately good numbers for the balance of its units, the stock could easily move back to $20. And, at that, it would still be only trade at half of its 52-week high.
Douglas A. McIntyre and Jon Ogg