There are many major stocks to watch this coming week as The Unusual Suspects… We tried to refrain from many earnings previews as earnings season still has too many players to single out just a few. This week’s installment of The Unusual Suspects includes Akamai Technologies Inc. (NASDAQ: AKAM), Alcatel-Lucent (NYSE: ALU), American Apparel, Inc. (NYSE-AMEX: APP), Bank of America Corporation (NYSE: BAC), CROCS Inc. (NASDAQ: CROX), Ford Motor Co. (NYSE: F), General Electric Co. (NYSE: GE), Genzyme Corporation (NASDAQ: GENZ), Research In Motion Ltd. (NASDAQ: RIMM), Symantec Corporation (NASDAQ: SYMC), and Warner Chilcott plc (NASDAQ: WCRX). We even have a feature for an African bonus after the Barron’s cover story this weekend that features iShares MSCI South Africa ETF (NYSE: EZA), Morgan Stanley Frontier Emerging Markets Fund (NYSE: FFD), and the Market Vectors Africa ETF (NYSE: AFK). We have made designations on each along with appropriate background data and trader color.
Akamai Technologies Inc. (NASDAQ: AKAM) has more losses coming. An options trade screened by OptionsHawk.com notes that the negative earnings effect and the drop in market cap still does not make shares attractive from a valuation perspective. Our technical analysis affiliate, Adam Hewison of INO, has the same conclusion in his detailed chart analysis with a different target. The conclusion is that a 15% drop for the week to $38.36 is likely to see a partial repeat with more losses. The 52-week range is $16.11 to $46.72, and this trades at over 27-times the expected 2010 earnings.
Alcatel-Lucent (NYSE: ALU) seems like one of the earnings reports where a turnaround that couldn’t turn around was being rewarded for bad behavior. The report in Euros showed 17% sequential growth on a 2.4% contraction year over year, but the $4.95 billion in revenues did beat the $4.72 billion estimate. The -$0.10 per ADR loss was wider than a number of -$0.06 expected, but it kept a forecast of 1% to 5% margin growth on Flat to 5% revenue growth for 2010 based upon a growing order book and strong second half expected. Normally we’d pan this as a failure because it is Alcatel-Lucent. But getting a fresh AT&T designation for a contract and the magnitude of the bounce might be making this worth a look. The 14.6% gain on triple-normal trading volume took shares from $2.60 to $2.98 versus a 52-week range of $2.25 to $4.95. If we take our “recovery to the mid-point of a year’s range we’d have a clear sailing up to $3.60 before raising any red flags. We also now have stable support at the 50-day moving average of $2.65 and no 200-day moving average until $3.22. Any pullbacks would seem to be solid entry-points for longer-term turnaround investors. It is almost painful to endorse Alcatel-Lucent because of a history of disappointments, but money is money.
American Apparel, Inc. (NYSE: APP) is a tug of war that just won’t end. Shares fell last week from $1.80 to $1.40 before ending at $1.61 after Deloitte resigned as its accountant. Ouch. Where this gets interesting is that it was disclosed a month ago that billionaire Ron Burkle took roughly a 6% stake in the company and shares popped up to $1.95 from $1.77 way back then. American Apparel has effectively not participated in the recovery. There is a huge headline risk in this company as it has a history of questionable moves on surprising news announcements. Get the coin toss game out here.
Bank of America Corporation (NYSE: BAC) is large enough that it might not have a huge jump, but Andrew Bary’s ‘No Card Games’ article in Barron’s this weekend called the recent weakness over it losing out from fee cuts and overdraft and late charges a buying opportunity. At $14.04 and a 52-week trading range of $13.30 to $19.86, this is one of our ongoing Large Banks With Large Upside features.
CROCS Inc. (NASDAQ: CROX) is one we recently said that the products were not on our personal clothing shopping lists but the stock was on our radar (back at $10.50) based on a very insightful stealth research call. The company does have earnings this coming week and it hit a 52-week high of $12.99 on Friday after announcing a settlement with Columbia Sportswear based on employee hiring issues. The market cap is back to $1.1 billion, the stock closed at $12.83 on Friday, and its new 52-week range is $3.34 to $12.99. This one has more than doubled so far in 2010 and CROCS will have to have a blowout quarter with much higher annual earnings guidance for it to not trade at a premium to apparel peers. After a run up like this, taking some of that risk-based capital would seem sensible.
Ford Motor Co. (NYSE: F) is going to be one to watch this week. Edmunds.com released a study and prediction last week that Ford was going to be the winner of the July auto sales with a gain of more than 13% year over year for July, or over 9% if you adjust for the one extra day of selling. Ford and other auto companies will confirm this data early in the week. The $12.77 close on Friday was up about 0.4% for the week. This weekend’s Barron’s says better says are still ahead.
General Electric Co. (NYSE: GE) is one that we’d want our readers to be involved in for a longer-term outlook. It has gotten through earnings season and is continuing to eliminate some of the finance unit’s dominance. NBC-Universal is still a deal under review but it is still in the process of being a stake divesting that will generate cash. With a 3% dividend yield after the hike and with its share buyback commencing immediately, there is probably more of a floor under the shares. After our review of conglomerates and their leadership over the broad market, we also found that G.E. is the conglomerate with the most implied upside for investors.
Genzyme Corporation (NASDAQ: GENZ) still has no official bid from Sanofi-Aventis as of Saturday night nor as of Sunday morning. The rumors and telegraphed deal are now 10 days old. There is no way to know if the buyout will even be above this $70 hurdle right now and this was a $54+ stock before the rumors surfaced of a buyout. The new market cap is roughly $18.5 billion. If no deal comes by Monday morning or Tuesday morning, it is probably going to be a situation where traders and investors begin to assume that the value is just not supportable at current levels.
Research In Motion Ltd. (NASDAQ: RIMM) gained about 3.2% and is up about 20% from lows. The company is expected to have a new phone, a new upgrade to its mobile operating system, is expected to debut its competition to the iPad, and it has juiced up its Apps development. This will be the week we get to see the launch announcements. If these are deemed solid, no one will care what the U.A.E. or Saudi BlackBerry bans bring.
Symantec Corporation (NASDAQ: SYMC) did major damage to itself and the ability for its long-term holders to have faith in the turnaround. The stock’s earnings, light revenues, and light guidance on sales push-outs and over its note of a choppy environment were NOT followed by rival McAfee, Inc. (NYSE: MFE). Symantec’s losses might have been McAfee’s gain. A slew of analysts downgraded the stock even as it hit new 52-week lows. Unless there is a screaming bull market, this is one we fear may repeat the mantra of ‘stocks that hit a 52-week low tend to put in more 52-week lows. Longer-term, we’d actually take a look at Symantec if shares get about 15% cheaper AND if the company appears to be stabilizing in operations. Near-term we would only expect selling to prevail. In short, that 15% loss this last week was probably not the very end of the selling.
Warner Chilcott plc (NASDAQ: WCRX) was one that we felt would be the first of all of the drug and/or biotech outfits to join into the dividend game in 2010. The Irish drug company did do it. They just did it in a manner that guts the company’s cash and it adds significant leverage. It is selling debt of $2.50 billion and is paying a one-time dividend of $8.50 per share. There is now a lower likelihood it could be acquired. This leverage higher may have also made it not even be an opportunistic acquirer either. Our take: Bravo for the dividend move, not so much bravo on the leverage. S&P Equity research cut the rating to Hold from Buy on the move. Still, shares closed up almost 5% Friday and almost 7% for the week.
This weekend’s Barron’s cover story depicts Africa just like Star Trek as “The Final Frontier” for investors that will be a huge missed opportunity for investors that stay away. The publication notes, “Investors will lose a huge opportunity if they avoid vibrant and changing Africa. Fast growth in a continent of misconceptions.” Investing directly into these markets is very difficult for U.S. investors, but we have three diversified easy ways in for our readers: iShares MSCI South Africa ETF (NYSE: EZA), Morgan Stanley Frontier Emerging Markets Fund (NYSE: FFD), and the Market Vectors Africa ETF (NYSE: AFK).
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JON C. OGG
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